Morningstar’s study on investor returns (hat tip to The Stingy Investor) confirms once again what other studies, such as DALBAR’s Quantitative Analysis of Investor Behavior, have consistently shown: investors are hurt by performance chasing and market timing. Morningstar found that U.S. investors, on average, earned 1.68% on their investments, the funds themselves returned 3.18% in the 2000-09 period. U.S. Equity Funds earned an average of 1.59% but the investors in those funds earned just 0.22% during the same time period. However, there are some surprises in the Morningstar study. Balanced fund investors (3.36%) experienced better returns than the funds themselves (2.74%) suggesting that investors in these funds are handling their emotions better. Interestingly, DALBAR also found that balanced fund investors held their funds significantly longer than both equity and bond fund investors.
You may also want to check out Morningstar’s explanation of dollar-weighted returns.