facebook twitter instagram linkedin google youtube vimeo tumblr yelp rss email podcast phone blog search brokercheck brokercheck Play Pause
Retirement Success Threat #5 of 5 - Emotions Thumbnail

Retirement Success Threat #5 of 5 - Emotions

By Jeffrey Meenes, CFP® (Published Date June 8, 2023) 

Our decision-making process is often influenced by our emotions, even when we are aware that statistically, these emotions can lead to poor choices.

Emotional reactions triggered by hype, media headlines, and news about market movements often result in detrimental decision-making by investors. They panic or get overly confident at the wrong moments, leading to premature buying and selling of investments.

Dalbar, Inc., a Massachusetts-based research firm with a 30-year history of studying mutual fund investor behavior and market returns, has found that the average equity fund investor consistently earns less than the index average.

According to the 2023 Dalbar Quantitative Analysis of Investor Behavior (QAIB) study, the S&P 500 delivered an annualized total return of 9.65% over the 30-year period through the end of 2022. However, the average equity fund investor only achieved a 6.81% return over the same period.

To illustrate this, consider a $10,000 investment in the S&P 500 over those 30 years, which would have grown to $158,584. However, the average investor's returns would have amounted to less than half of that.

Over the long term, the S&P 500 has historically provided annualized returns of 9% to 10%, depending on the specific multi-decade timeframe. In contrast, the typical investor falls significantly short of these returns by simply buying an S&P 500 index fund and matching the market's performance.

The Solution

The best way to protect yourself from the negative effects of emotions is to develop a long-term financial and investment plan and stick to it. When you have a plan, you're less likely to make emotional decisions.

You should also consider working with a financial advisor who can help you stay on track and make sound investment decisions. A financial advisor can help you; Understand your risk tolerance, create an investment plan that meets your goals, stay disciplined, and avoid making emotional decisions.

Don't let your emotions get in the way of your retirement savings. Develop a plan, stick to it, and get help from a financial advisor if you need it.

This content is developed from sources believed to be providing accurate information, and provided by Meenes Wealth Partners. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.