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 specific asset allocation. This strategy seems counterintuitive 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 over the same time period. In fact, the report issued in April 2013 opened with this headline: “The Disease of Investor Underperformance.” Dalbar’s 2014 QAIB study succinctly states, “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.” The Dalbar study further addresses the problems with performance chasing investor behavior by stating, “Mutual fund investors who hold on to their investments have been more successful than those who try to time the market.” The report has shown for the 20th time in as many years, that “the average
Published on Jun 1, 2015
This book reveals the potential land mines and pitfalls of active investing and educates readers on the benefits of passive investing with i...