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and approach of “Rebalancers” who sell a portion of their funds that have grown beyond their target allocation and buy more of other funds to restore their target allocation. This is actually the opposite behavior of active investors, because rebalancers will sell a portion of their portfolio after it has gone up and buy more of those investments that have declined in order to maintain a target asset allocation. This strategy seems counter intuitive and can be emotionally difficult to implement. Rebalancing requires discipline and ensures that a portfolio will remain at a relatively constant level of risk. The impact of emotional triggers on investor performance is a subject of much analysis. An annual study called the Quantitative Analysis of Investor Behavior (QAIB),13 which has been conducted by Dalbar since 1994, attempts to measure the impact of investor decisions to buy, sell and switch into and out of mutual funds. Each year the study has shown the average mutual fund investor earns significantly less than the actual mutual funds. “No matter what the state of the mutual fund industry, boom or bust: Investment results are more dependent on investor behavior than on fund performance,” a recent QAIB concluded. The report issued in April 2018 reiterated this finding, concluding that poor investor behavior caused the average equity mutual fund investor to underperform the S&P 500 index by 1.19% for the year 2017. Honing in on the deleterious effects of performance chasing behavior, the QAIB found that mutual fund investors “who hold on to their investments have been more successful than those

Index Funds: The 12-Step Recovery Program for Active Investors  

This book reveals the potential land mines and pitfalls of active investing and educates readers on the benefits of passive investing with i...

Index Funds: The 12-Step Recovery Program for Active Investors  

This book reveals the potential land mines and pitfalls of active investing and educates readers on the benefits of passive investing with i...