9 Behaviors Hurting Investors’ Returns in 2016 and Beyond

History has shown that when a long-term view is taken, financial markets – and the stock market in particular – yield a favorable return, regardless of the temporary fluctuations in markets caused by economic pressures or world events. However, while many investors dream of 'beating the market,' the reality is a little more pessimistic than that: the average equities fund investor earned 8% less than the S&P 500 over a 12-month period.

This statistic comes from an eye-opening special report titled "Dalbar's 21st Annual Quantitative Analysis of Investor Behavior." Dalbar's research measures the impact of investors' buy-sell decisions over short- and long-term timeframes, and examines WHY investors make buy-sell decisions that hurt their returns.

So, why do investors earn so much less than their investments?

The easy answer is that investors buy and sell at the wrong times, through a lack of expertise or plain poor timing. While this is somewhat accurate, it is simplistic, and the fundamental reasons are a little deeper. The Dalbar report has narrowed these reasons down to a set of 9 behaviors that lead to irrational decision making, and hence poor investment performance. These behaviors result from common psychological traits, traps, and triggers, which are summarized in this concise graphic:

While individual investors may experience differing combinations of these problems depending on their particular outlook and character, the outcome is in most cases the same: a fear of loss (either actual loss or missing out on an opportunity), and therefore a rush into poor decisions which inevitably lead to unsatisfactory longer term performance.

The investment advisor's role is to calm these fears effectively, and to offer guidance that puts the client's perspective back on track. No matter the short term conditions, trying to beat the market through getting in and out at the exact right times is unlikely to be consistently successful, while investors who hold steady and resist the urge to be unnecessarily active will usually receive their reward over the long run.