Return for typical investor

[yosemite]

My investments are all in VTI due to low costs and diversification.

I’m talking to family and friends it seems maybe 1 out of 20 people in my group follow a similar strategy. Most don’t invest at all, buy through a financial manager, invest in real estate, buy whole life insurance or buy individual stocks. I was assuming that almost everyone was simply buying VTI or similar., but that doesn’t seem to be the case.

Has anyone run across numbers for how much the typical investor is underperforming the S&P 500 once you take into consideration excessive fund fees and poor asset allocation?

Thanks

 

[VanWinkle]

My investments are all in VTI due to low costs and diversification.

I’m talking to family and friends it seems maybe 1 out of 20 people in my group follow a similar strategy. Most don’t invest at all, buy through a financial manager, invest in real estate, buy whole life insurance or buy individual stocks. I was assuming that almost everyone was simply buying VTI or similar., but that doesn’t seem to be the case.

Has anyone run across numbers for how much the typical investor is underperforming the S&P 500 once you take into consideration excessive fund fees and poor asset allocation?

Thanks

Are you happy with 100% equities? Are you able to stomach the losses of this bear market? If you are young enough to have 7-10 years before needing the money, then at least a portion of your investments should be in a VTI type fund. I am retired and have 50% VTI and 50% fixed income. What you hear others brag about is likely because they don't really know their investment return. An advisor won't pick better investments, but they may keep you invested when the emotions try to get the best of you.

VW

 

[DrRoy]

All my equity investments are in index funds or ETF's. I have VTI, SPX, and RSP.

 

[target2019]

My investments are all in VTI due to low costs and diversification.

I’m talking to family and friends it seems maybe 1 out of 20 people in my group follow a similar strategy. Most don’t invest at all, buy through a financial manager, invest in real estate, buy whole life insurance or buy individual stocks. I was assuming that almost everyone was simply buying VTI or similar., but that doesn’t seem to be the case.

Has anyone run across numbers for how much the typical investor is underperforming the S&P 500 once you take into consideration excessive fund fees and poor asset allocation?

Thanks

Vanguard has information from their studies about actively managed funds. It's very easy to find old discussion about passive vs. active management.

As for what others in your group do or don't do, it shouldn't be a concern of yours. Some of them will probably become more successful than you, but that is not your path.

It might help you to study those other investing styles, and come to your own conclusions.

There are many roads to Dublin, as travellers discover.

 

[Aerides]

I don't know what's typical. I don't care. I do recall reading something along the lines of the 4% SOR ER portfolio averaging about 7% to be safe-ish. Thought being that after inflation and taxes, that 7 would even out to about 4 each year.

This year of course isn't that, but, over the long haul, it tends to even out.

And for the few years preceding the current issues, most with VTI/VTSAX and the like, did more like 10-11 on those funds.

 

[Mark1]

...
I’m talking to family and friends it seems maybe 1 out of 20 people in my group follow a similar strategy.
...

"my group" ??

Once I the consider the wide variations in family and friend's position in life (e.g. age, net worth, SS income, pension-or lack of, home ownership, desire to leave kids money, risk tolerance, etc.), I discovered that DW and I are probably in "a group" of two.

I suspect that your "group" size might not actually be a large as you think.

 

[arcyallen]

Has anyone run across numbers for how much the typical investor is underperforming the S&P 500 once you take into consideration excessive fund fees and poor asset allocation?
Thanks

It's not those "excessive fund fees", it's us. From Dalbar, one of my favorite sources of investor behavior/performance:

"In 2015, the 20-year annualized S&P return was 8.19% while the 20-year annualized return for
the average equity mutual fund investor was only 4.67%, a gap of 3.52%."

There are more up-to-date numbers available, but I'm struggling to find them this morning. Investors are their own worst enemies. We tend to buy high and sell low. When we're swimming in FIRE and ER exposure we forget we are a minority in terms of mindset, and people are making lots of different (and successful) investment decisions that aren't just "buy and hold the index!". I find people who think they "know better" are the worst offenders in terms of underperformance. In early 2020 I was talking to a prominent FIRE blogger who had decided to cash out a large portion of investments "just in case". Despite absolutely knowing better, he still couldn't resist. I tried HARD to get him to stay steady, but I don't think it worked. I also remember reading how Peter Lynch was disappointed that the average investor in his Magellan fund BROKE EVEN while the fund was killing it during his tenure running it.

https://cdn2.hubspot.net/hubfs/5341408/EP_Wealth_Advisors_April2019/pdf/2016-Dalbar-QAIB-Report.pdf

 

[Montecfo]

also a longtime fan of Dalbar.

Hence my mantra to "Stay Fully Invested".

 

[COcheesehead]

Fidelity used to publish returns across a wide spectrum of investor types. They would show returns for clients in the top 5%, in different age categories, investors with your similar profile, etc. from what I remember they varied wildly. So there is no “typical” investor.

 

[yosemite]

"my group" ??

Once I the consider the wide variations in family and friend's position in life (e.g. age, net worth, SS income, pension-or lack of, home ownership, desire to leave kids money, risk tolerance, etc.), I discovered that DW and I are probably in "a group" of two.

I suspect that your "group" size might not actually be a large as you think.

My group is all people that are in a similar situation in terms of education, age, income and kids. I've filtered out people that are in different situations.

 

[yosemite]

It's not those "excessive fund fees", it's us. From Dalbar, one of my favorite sources of investor behavior/performance:

"In 2015, the 20-year annualized S&P return was 8.19% while the 20-year annualized return for
the average equity mutual fund investor was only 4.67%, a gap of 3.52%."

Investors are their own worst enemies. We tend to buy high and sell low.
https://cdn2.hubspot.net/hubfs/5341408/EP_Wealth_Advisors_April2019/pdf/2016-Dalbar-QAIB-Report.pdf

Thanks. This is what I was looking for.

And you're so right with the line, "Investors are their own worst enemies". I've known people that sold during the covid downturn and never got back in.

Plus I think so many people don't put any more money in than the minimum 401k match provided by the company. So they are probably limited in what they can choose.

 

[yosemite]

I also think many people are scared of investing from hearing things like gamestop, crypto, and trying to time past markets.

would be interesting to know what percentage of people even invest at upper income levels

 

[OldShooter]

Here's a chart from my Adult-Ed investing class, though a few years old at this point:

and here's a story:

A few years ago when I was developing my class I spent a bunch of time with a TDAmeritrade branch manager. At that time TD's business focus was on day traders. After an hour or so we were pretty comfortable with each other, so I asked: How did your day traders do in the market last year?" There was a long, embarrassed pause, then she said "One and a half percent." That would have been 2017, when the market indices were up between 20% and 40%.

The moral here may be that the average investor really does need an FA.

 

[yosemite]

Wow, that's really low, 2.1%

Probably why people think real estate is the only way to make money.

Thanks for sharing that story, that's really interesting.

I think hanging out in FIRE/boglehead type forums made me see life in that bubble. But the reality is starkly different.

Makes me feel good in one way, that the returns from VTI will outdo most everyone else.