Investor Returns Hurt by Attempts to Time the Market

The average investor has lagged behind the average fund for the past 10 years, writes Russel Kinnel, Director of Mutual Fund Research at Morningstar. The reason, he says, is that “in aggregate, investors’ timing is not very good.”


Kinnel cites data showing that, for the ten years ending 2016, the average investor saw mutual fund returns of 3.96% even though the average return for those funds was actually 4.33%. Kinnel points out that there are many different factors at play–for example, he says, two funds “doing the same thing might have different investor returns just because they are in different sales channels or had different launch dates.” That said, however, he suggests that investors might be better able to close the gap if “everyone left their funds alone.”

Even in overseas markets, writes Kinnel, “the gaps and behavior patterns were not so different from what we saw in the U.S.” He notes, however, that most data only went back five years– which might result in an understatement of the gap.

“This is why I always take time out to warn you to ‘Mind the Gap,'” Kinnel asserts, adding, “Saving enough money and selecting the right investments are crucial to your success. But timing is another vital piece that investors tend to forget.”