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tdp2664 InvestorPlace Let’s face it: The past 12 years have been horrible for most investors. This is not necessarily because the markets have been rocky, but rather because the vast majority of investors are hardwired to do three things that kill returns. You can blame Washington, the European Union, debt, high unemployment or half a dozen other factors if you want to, but ultimately, the person responsible is the same one staring back at you from your bathroom mirror in the morning. That’s why understanding the bad habits you didn’t know you had can be one of the quickest ways to improve your financial wealth. Here’s what I mean: Dalbar, a Boston-based market research firm, produces annual research that compares the returns of stock and bond markets with those of individual investors. The latest, covering the 20-year period ended last year, shows that the S&P returned an annualized gain of 9.1%. That stands in sharp contrast with the measly 3.8% gain individual investors averaged over the same time frame. Fixed-income investors didn’t do any better. According to the Dalbar data, they gained a mere 1% a year versus an annualized return of 6.9% for the Barclay’s Aggregate Bond Index. In other words, investors’ self-defeating decisions contributed to an underperformance that was 58% below what it could have been for stocks and 85.5% below what it could have been for bonds. Why? Three reasons: recency bias, herd behavior and fear.
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