Friday, August 16, 2019

Short Takes: DALBAR and Millennial Investors

I managed only one post in the past two weeks:

Irrational Exuberance (

Here are some short takes and some weekend reading:

Cameron Passmore and Benjamin Felix discuss mortgage rates, REITs, and investor performance in mutual funds and variable annuities. Their podcasts are consistently entertaining and informative. In this podcast, it was the discussion of DALBAR’s studies that caught my attention. DALBAR regularly reports that individual investors underperform the mutual funds they invest in by wide margins because of behavioural errors. The gaps are usually so wide as to make them unbelievable. It turns out that their figures are nonsense, but few people in financial advisory positions seem to examine them closely, presumably because the message that people need help with their investments is welcome. I’ve discussed the problem with DALBAR’s “methodology” in detail before. Here is an attempt at a brief explanation: If you put some money into a 10-year old mutual fund, you’re automatically an idiot for having missed out on the previous decade of returns. No matter how long you leave that money in the fund untouched, those missed returns will contribute to DALBAR’s calculated investor underperformance.

Robb Engen at Boomer and Echo discussed a recent DALBAR report. Mutual fund investor returns do lag index returns, in part because of high mutual fund fees. DALBAR’s numbers are not a useful measure of investors’ poor market timing.

Tom Bradley at Steadyhand has some solid advice for millennial investors. I certainly hope my sons avoid the mistakes I’ve made.

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