Picking individual equity stocks can have the potential for market beating returns – but also carries increased risk. A study done by Hendrik Bessembinder of equity markets spanning nine decades revealed that only 4% of the best-performing U.S.stocks produced all the market’s increases. The rest were flat – the gains of the following 38% were offset by the losses of the bottom 58%.

Research demonstrates that investors have difficulty making sensible investment choices. A DALBAR study analyzed investors from 1986 to 2015 and found that the average investor significantly underperformed compared to the S&P 500 benchmark . Over 30 years, the S&P 500 produced a return of 10.35%, while the average retail investor return was only 3.66%. An important takeaway of this study is that investors underperform because they try to time volatile markets and permit their emotions to dictate their investment decisions. Intelligent investors tend to underperform their benchmark because they allow emotions, such as fear or greed, to drive investment decisions.

Theses investors tend to be overconfident and misjudge risk, latch onto a price target, or perceive a pattern that isn’t there. This “behavior gap”, over the long-term, can be catastrophic with potential underperformance of hundreds of thousands of dollars sabotaging your retirement.

Retirement Investors

Your retirement portfolio should be managed with a long term strategy of performance over decades and generations. Most self-directed investors tend to fall short when it comes to long-term results that meet or beat market benchmark. One solution is to take 10% of your investable assets and trade to generate alpha and seek outsized returns.

A retirees’s assets earmarked for retirement should be invested using a more long term, conservative, risk managed approach to generate steady, compounded returns so you can safely reach their retirement goals.

https://www.garycarmell.com/skewed-bessembinder-study/