Investment insights - the behaviour gap for investors

This time of year is when Morningstar releases the annual review of managed funds performance and compares it to the market. However, in this month's feature article, we take a slightly different look at these numbers and compare the returns that were reported by the funds with those that the investor actually receives. Whilst that sentence may sound strange with hidden fees or the like inferred, the answer is actually quite simple - the problem is the investor!

In his article titled "Investors' miscues sap returns – again", John Waggoner notes that "the average investor's return has lagged the average fund's return by 2.49 percentage points a year with the typical investor gaining 4.8% a year for the 10 years ended December 2013, vs. 7.3% for the typical fund". The reason for this is that investors try to time the market rather than focusing on the long term time IN the market.