There is no shortage of studies showing that average investors underperform the market averages, often by 2-3% per year.  However, Barry Ritholtz’s excellent book How Not to Invest says that average investors underperformed by 5% per year one decade and only 2% per year the following decade.  How could this be?  It doesn’t appear to make sense.  So, I started digging. The Data Here are simplified version of the chart I saw on page 382: So, average investors trailed a basic 60/40 portfolio by 2.4 percentage points per year.  This is plausible.  Investors pay expenses, and some of them do some market timing.  Here is what I saw on the next page: This time the behaviour gap is 3.8 percentage points per year for 20 years.  Ritholtz makes the point that “The longer the holding period, the greater the impact of errors that disrupt compounding.”  This is true as it applies to the final dollar value of your holdings.  After all, 20 years of mis...