Investors’ Emotional Roller Coaster

Individual investors act too emotionally and irrationally for their own good. For proof, look at stacks of studies from the academic field of behavioral finance. Or look at actual investor behavior. On a monthly basis, research firm Dalbar tracks the erratic pace by which individuals put money in and take money out of mutual funds. A lack of investing consistency takes a toll on their results. To show how that happens, Dalbar provided data on the patterns of buying and selling—and the resulting returns—of an average fund investor over the last 20 years.

The interactive graphic below tells the story.

The last two decades were volatile for the stock market, and self-defeating investing behavior made individuals’ investment returns even more erratic. This gray line is the performance of the S&P 500.