Investors Bailed Out of Stock in 2018 and Got Double-Slammed

The average investor fled from the stock market and ended up losing twice what the S&P 500 did, Dalbar says.

They did it again. The average investor took money out of the stock market in 2018, a year that suffered from two painful corrections. And their investment performance was worse than the market’s, according to a survey by research firm Dalbar.

The S&P 500 dipped 4.38% last year, but that average investor lost more than twice this, 9.42%. And if that unfortunate investor had a diminished or cashed-in stock portfolio this year, the poor soul couldn’t take full advantage of the 2019 bounce-back.

Year-to-date, as of Thursday’s close, the S&P 500 is up 14.86%. For that matter, the tech-heavy Nasdaq Composite is ahead 18.94%. For instance, Facebook, which took a dive in the fall, has retraced a lot of its losses.

“The problem was compounded by being out of the market in the recovery months,” noted Cory Clark, Dalbar’s chief marketing officer.

Investment gurus, ranging from Warren Buffett to Benjamin Graham, have long advocated staying in the market when things go south. But the average investor is deaf to such entreaties. Behaviorists call the poor market timing the result of “recency bias.”

The investors only see what is most recent—and fail to remember that those who stayed fully invested through the financial crisis regained their lost wealth and went on to earn a whole lot more in the powerful rally that began in March 2009.

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