Page 56 - Ready Set Retire

Stephen J. Kelley

Ready Step 4: Tame Your Emotions

T he whole premise of a typical market “buy and
hold” strategy presumes you have the intestinal
fortitude to ride out long bear markets. The
average investor actually gets much less in the market because
people are motivated more by emotions than logic with
markets. So they get out after long downturns and get back in
after rallies have been in place for a while. Look at this chart:

Figure 5: “Quantitative Analysis of Investor Behavior, 2016,”
DALBAR, Inc. www.dalbar.com

The 30-year return on equity funds for the average investor
was 3.66%, while the S&P 500 racked up 10.35% during the
same period! For 20 years the returns were 4.67% and 8.19%
respectively, and so on. Average investors, ruled by emotion,
are constitutionally incapable of making wise choices about
their investments. History also tells us this holds true for fixed
income investments. Compare the 30-year rate of .59% for
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