Investment Strategy Problem #2

Good Morning Relaxing Retirement Member,

Over the last two weeks, we’ve been attempting to discover what we can do to close the horrific performance gap revealed in the 2013 DALBAR Report.

Before I outline one of the biggest contributing factors to these devastating results, which is rampant today given the recent performance of equity markets, let’s quickly examine what the 2013 DALBAR Study revealed:

  • The average annual return of the S&P 500 Stock Market Index from 1993 – 2012 was 8.21% (including dividends reinvested)
  • Over the same 20 year period, from 1993-2012, the average annual return of the “average” equity mutual fund investor (not investment, but an investor, i.e. a person) was 4.25%

What these numbers tell us is that, while the S&P 500 Market Index delivered a healthy average annual return over those 20 years of 8.21%, the average stock mutual fund investor (a person, not an investment) only achieved 4.25%!

That means that the average stock mutual fund investor’s return was 48.3% less than the market barometer of “average” returns, not above average, each and every year!

The Effect

There are many, many reasons why social security statistics continue to demonstrate that only 6% of Americans are financially independent at retirement age, and can continue their same standard of living throughout their retirement years.

This DALBAR report illustrates a huge one!

The good news out of all of this, however, is that it’s completely within your control to close this performance gap.

This ugly performance gap is not the result of bad investments or bad markets.

They are the direct result of poor investor strategy and behavior (action or inaction), all of which you have the ability to control!

Enjoying the relaxing retirement that you’ve worked so hard for and deserve requires not only action on your part, but resisting the allure of the wrong actions taken by the overwhelming majority of retirees.

Let’s examine one of them….

  • The “Euphoria” Zone

    One of the great contributors to the average investor earning 48% less than market averages, year in and year out, is occurring at a rapid pace RIGHT NOW!

    I refer to it as the “Euphoria Zone”!

    What exactly do I mean by Euphoria, and how does it apply to investing?

    Well, it’s the financial equivalent of “rapture of the deep” which is a phenomenon that overtakes scuba divers when they dive down really deep.

    Divers get completely blissed out and they lose any adult sense of danger.

    The same thing occurs with investment Euphoria, and it’s happening out there right now.

    When you’re in The Euphoria Zone, there’s a complete loss of the idea that risk exists.

    The best way to identify this in anyone is when their identification of loss, or their definition of risk, is being outperformed by somebody else!

    In other words, goals are completely thrown out the window.

    Perspective is gone.

    All that matters is that someone in the world has earned a better rate of return this year.

    They completely lose sight of their objectives and their plans and, instead, are attracted to the bright, shiny object of someone hitting a temporary investment home run.

    What they lose sight of completely is the fact that in order to achieve higher and higher rates of return, they must subject themselves to greater and greater amounts of price volatility, and capital risk.

    1997 to 1999: The “New” Economy

    The classic example of this was from 1997 through 1999 when people bought internet stocks at price multiples of 75 to 1!

    Even those who were earning good rates of return doing what they were already doing. But, that didn’t matter because others were earning more so they jumped into the pond without a second thought about the potential ramifications.

    Why? Because they were in the “Euphoria Zone”: their identification of loss, or their definition of risk at that moment in time, was being outperformed by somebody else!

    2005: Real Estate

    Another example of this was real estate in 2005. There was no price that was too high to pay for a pre-developed condo in Boca Raton, or Naples Florida because they just knew it would double in price in 3 years!

    Why? Because prices had doubled over the last few years and they would surely do so again! And, they couldn’t bear the thought of “missing out” on that.

    In hindsight, we now know what the result of this is. Condos in those towns are now selling for 25 to 40 cents on the dollar. A couple recently referred to me purchased a condo in Naples for $529,000 that they can’t sell today for $200,000!

    What essentially occurs in The Euphoria Zone is the complete loss of any sense of risk at all. None.

    And, that’s one of the biggest mistakes that leads to irrational investing and the average investor earning half of what market averages provide.

    Stay out of the trap!

    Committed To Your Relaxing Retirement,

    Jack Phelps
    The Retirement Coach

    P.S.WHO do you know who could benefit from receiving my Retirement Coach “Strategy of the Week”? Please simply provide their name and email address to us at Or they can subscribe at appreciate the trust you place in me. Thank you!