average investor's returns

What's the craziest statistic about personal finance?

One that’s mind blowing.

The average investor’s return on investments is about a 1/3 of the average return on investments. Yeah, I’ll give you a moment.

Investors today can trade on line for free. They have access to thousands of research reports. They can buy and sell instantly. They can tune into financial news 24/7.

Yet, the U.S. stock market has averaged around 9 – 10% return per year over the long haul. And during those same periods investors have averaged around 1/3 of that.

How can that possibly be?

It’s because the average investor chases performance. The stock market makes new highs and investors pour money in. Stock market crashes and investors bail out and wait until it makes new highs again.

Buying high and selling low. A fool proof formula for destroying wealth.

And many do the same thing with investments. A hot new investment screams towards the sky so they put everything into it. Then it crashes to earth incinerating.

So what’s the antidote?

Something the average investor simply isn’t wired to do. Do the opposite of what you instinctly feel and see most other investors doing.

Because if you do what everyone else is doing you’ll get what everyone else is getting.

As I’ve heard said, “Human nature is a failed investor.”

Think about it. When our ancestors were hunter gatherers they chased performance. They all congregated at the same place on the river where someone was catching fish. They all hunted in the same place where someone got game.

It’s how we’re wired. And it worked.

Except in investing. Because by the time a new investment is screaming up and popular it’s about to run out of fuel.

And by the time the stock market is bouncing off new lows and people are liquidating it’s getting ready to make a run up.

So how do you do this?

It’s tough and frankly at times gut wrenching. But accomplishing it is the key to long term wealth. And understanding it is the first step.

Though, people will think that’s crazy.

You can build wealth but only as you first understand what destroys it.

-- Doug Armey, September 29, Successful entrepreneur, investor and financial consultant