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The Plight of the Individual Investor
It's long been known that individual investors do not typically fare well in their efforts at do-it-yourself investing. This notion has been validated by numerous studies, including one by Dalbar, Inc., which revealed the staggering margin by which the average individual investor trails the returns of the broader market.
The study revealed the S&P 500 returned an annualized 11.81% from 1988 through 2007; yet the average investor's return over that same period was a paltry 4.48% - even less than the most conservative of investments, the 30 day Treasury Bill.
Why is the individual investor so inept at capturing the returns of the market? In a word: Emotions.
Emotion drives investors to buy the latest hot fund near its peak and sell the fund after riding it to the bottom on its inevitable slide downward. This "buy high, sell low" scenario is unfortunately not just an anecdote, but is very real for many investors.
*Source: Plight of the Individual investor: "The Tyranny of Choice" by N. Scott Pritchard, AIFA, Capital Directions, LLC
7 Ways to Mess Up your 401(k)
Do you have the time, training and temperament to make good decisions?
The vast majority of participants in a company retirement plan do not pay the needed amount of attention to their initial investment selection. Moreover, statistics show plan participants rarely revisit their choices over time as their objectives change and markets evolve.
- Not signing up
- Not getting the full company match
- Taking too much risk
- Taking too little risk
- Following the crowd
- Taking out loans
- Cashing it out
*Source: MSN Money - Staff Writer - Liz Pulliam
Recent Schwab survey says it all: Advice Matters
In a Charles Schwab's study, "The New Rules of Engagement for 401(k) Success", plans serviced by Schwab found that the use of advice can have a significant impact on people's behaviors in 401(k) plans. Specifically, use of professional advice has a positive impact on participant savings, diversification and participant savings rates nearly double.
*Source: The New Rules of Engagement for 401(k) Success (0910-5578), Charles Schwab 2010