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  • How To Overcome Emotions and Control Behavioral Risk in Investing

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    The document compares the returns of equity fund investors and the S&P 500 Index over a 20-year period from 1989 to 2008. It shows that while the S&P 500 returned 8.35% annually, equity fund investors averaged only 1.87% annually, underperforming the index significantly. A chart shows that $100,000 invested in the S&P 500 in 1989 would have grown to over $458,000, while the same investment managed by equity fund investors would have reached just $142,000, underlining the poor performance of individual investors compared to a simple index fund investment.

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    How To Overcome Emotions and Control Behavioral Risk In Investing

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    How to Overcome Emotions and Control Behavioral Risk in Investing

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    The document compares the returns of equity fund investors and the S&P 500 Index over a 20-year period from 1989 to 2008. It shows that while the S&P 500 returned 8.35% annually, equity fund investors averaged only 1.87% annually, underperforming the index significantly. A chart shows that $100,000 invested in the S&P 500 in 1989 would have grown to over $458,000, while the same investment managed by equity fund investors would have reached just $142,000, underlining the poor performance of individual investors compared to a simple index fund investment.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
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    721 views3 pages

    How To Overcome Emotions and Control Behavioral Risk in Investing

    Uploaded by

    investingthesis
    The document compares the returns of equity fund investors and the S&P 500 Index over a 20-year period from 1989 to 2008. It shows that while the S&P 500 returned 8.35% annually, equity fund investors averaged only 1.87% annually, underperforming the index significantly. A chart shows that $100,000 invested in the S&P 500 in 1989 would have grown to over $458,000, while the same investment managed by equity fund investors would have reached just $142,000, underlining the poor performance of individual investors compared to a simple index fund investment.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
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    of 3

    Equity fund investor vs.

    S&P 500 Index


    20.00%

    10.00%

    2008 1.87% 8.35% S&P 500


    0.00%

    -10.00%
    20 Years Equity fund
    1989 - 2008 investor
    -20.00%

    -30.00%
    - 37.72%
    -40.00%
    - 41.63%

    -50.00%

    Source: Dalbar, Quantitative Analysis of Investor Behaviour, 2009.


    Equity fund investor vs. S&P 500 Index
    from 1989-2008
    $500,000

    $450,000

    $400,000

    $350,000

    $300,000 $316,739
    $250,000
    $458,933
    at 8.35%
    $200,000

    $150,000

    $100,000
    $100,000
    $142,194
    $50,000
    at 1.87%
    $0
    1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

    S&P 500 Equity fund investor


    Source: Dalbar, Quantitative Analysis of Investor Behaviour, 2009.
    Mindful investing

    The cycle of market emotions


    Point of maximum
    financial risk
    “Wow, I feel “Temporary setback.
    great about this I’m a long-term investor.”
    Euphoria
    investment.” Anxiety
    Thrill
    Denial
    Excitement
    Fear

    Optimism Desperation Point of maximum Optimism


    financial opportunity
    Panic
    Relief
    Capitulation Hope

    Despondency Depression
    “Maybe the markets
    just aren’t for me.”

    Source: Westcore Funds/Denver Investment Advisers LLC, 1998.

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