Looking at Market Data on Human Emotions and the Average Investor Back to 1920
January 23, 2023
Welcome to Wealth Enhancement & Preservation’s Market Minute, where we get to update you on everything that happened in the financial markets this week. My name is Darrin Cohen, and I am the CEO of Wealth E&P.
Markets were fairly flat to slightly down last week. It was still up about 5%-6% year-to-date, even though there is a lot of uncertainty and volatility in the markets. Our indicators are still pointing to that uncertainty on the downside.
I want to talk today about emotions and their impact on market returns. Check out these interesting findings from BlackRock below:
You can see above, going back to 1993, the average investor earned about 5.5%, even though the S&P 500 was well above 10% over that same period of time. We can go back to the 1920s or 1930s and we would see the same trend: human behavior causes us to miss out on about 4-6% annual returns per year.
The above image shows the roller coaster the average person tends to take: as markets go up, we get more and more excited until we tend to buy in at the high point. The market turns around, we go back down, we hit the panic-stricken point, and that's when we get out. That is what causes a big Delta between market performance and individual investment performance. It’s very important to get emotions out of the way by having a process or formula for how to adjust to current market conditions.
If you have any questions about our process, this topic, your portfolio, the economy, or if you want a risk profile or a retirement projection, please feel free to reach out, visit www.wealthep.com, or give us a call at (678)-739-0175. Otherwise, stay tuned for our Market Minute next week!
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.
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