The Stock Market
Investors often fail to achieve market index returns on their investment. In 2015, the Dalbar study found that the average equity mutual fund investor had a return 8.19 percent lower than the S&P 500.
What are some of our shortcomings as Investors
There are several theories as to why investors often underperform the market:
Investor Regret Theory
Mental Accounting Behaviors
Investor Anchoring Behaviors
Over- and Under-Reacting
How to avoid some of these pitfalls
When you are looking to create a well-balanced portfolio and avoid some of the mistakes that we described above, consider following some of the following advice. First, diversify across asset classes and make sure that you have a blend of different growth and value styles. Second, do not be afraid to invest in stock markets abroad! Do your research and see if you want to diversify your portfolio further with either foreign stocks or investing in the foreign exchange market. Third, make sure to rebalance your portfolio in regular time intervals and to make sure to get rid of an investment that you think will only create more losses further down the road.