Investor Returns Hurt by Chasing Performance

January 17, 2001 ( - Buying high and selling low caused a 20% shortfall to the average mutual fund investor over the past decade, a Phoenix Investment Partners study shows.
The study, Investor Behavior and Its Impact on Long-Term Investment Success, conducted by Financial Research Corporation (FRC), indicates that mutual fund investors experienced 20% lower returns on average during three-year holding periods throughout the last decade.

Specifically, on a rolling return basis from January 1990 through March 2000, the average mutual fund’s mean three-year return was 10.92%, while the average invested dollar gained only 8.7% over the same period.

The study cites investors’ propensity for chasing performance as a main reason for lower returns, as measured by rising mutual fund redemption rates and shortened holding periods.

The study also finds that investors who use financial advisors tend to experience slightly better returns than those who do not rely on professional advice.

“The moral of the study is that investors who make investment decisions based on emotion, not logic, in pursuit of big stock market gains, are more likely to lose out in the long run,” said Jack Sharry, President of Phoenix Investment Partners’ Private Client Group.