Many retail investors panicked and sold during last month’s market meltdown (again)

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Mom and pop investors just lost billions during Wall Street’s latest bait-and-switch, official figures show.

Yet again.

Ordinary investors dumped $44 billion in stock-market mutual funds and exchange-traded funds during the three-week plunge at the end of the year, says the Investment Company Institute, which represents the fund industry.

The Dow Jones Industrial Average














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 has jumped more than 2,000 points, or about 10%, since hitting the lows around Christmas. The broad MSCI All-Country World Index has risen about 7%.


’Some investors couldn’t handle the volatility.’


—Larry Glazer, managing partner and money manager at Mayflower Advisors in Boston


“In December we saw a resetting of expectations for the economy and the stock market happen really quickly,” says Larry Glazer, managing partner and money manager at Mayflower Advisors in Boston. “Some investors couldn’t handle the volatility.”

Whether the bear market is over, or having a brief nap, remains — as ever — an open question.

But the latest stampede out of stocks follows an old playbook. Main Street investors have consistently sold when they should have bought and bought when they should have sold, data has shown. The average investor in an equity mutual fund has lost about two full percentage points a year, or a quarter of the total return, to miss-timed trading, says analysis by Boston-based research company Dalbar, Inc.

Glazer says earlier in the year he was getting calls from clients “literally living in retirement communities” who wanted to dump their stocks and jump into the so-called “FAANG” stocks — high-tech bellwethers Facebook














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Apple














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Amazon














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Network and Google














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Main Street investors have consistently sold when they should have bought and bought when they should have sold.


Market-timing isn’t just a problem for those who try to pick fashionable stocks, say experts. It’s also a problem for those investing in simple, “low cost” index funds and exchange traded funds to save on fees.

That’s because investors in such simple funds are typically among the worst offenders for bad timing. Indeed, their timing costs them far more, on average, than they save on fees.

From 2002 through 2016, the average investor in a low-cost index fund or exchange-traded fund earned 2.85% a year, says Dalbar.

The investor in a high fee, actively-managed mutual fund? Try just over 4%.

In other words, they pocketed 40% more in investment gains per year, even though active funds, as a group, ended up underperforming the market.

One reason: Investors in low-cost funds are more likely to bolt at the first roll of thunder in the markets. Given the costs involved in trading, some might say index funds and exchange-traded funds should be called “low fee” rather than “low cost.”

Dalbar also suggests that investors in some ”active” funds also benefit because those funds can play defense in tough markets.


Investors in simple ‘low cost’ funds are typically among the worst offenders for bad timing.


—Boston-based research company Dalbar, Inc.


Logically, actively managed funds in total cannot outperform passively managed funds because you have to deduct higher fees.

But private investors may be less interested in theory and mathematical formulae than they are in the actual dollars and cents they bank on their hard-earned money in the real world.

Being told to “buy and hold” and “focus on the long term” is easy to say, but sometimes hard to do — especially when your index fund follows the market down 10% or 20%, and some experts make reasonable arguments that they could go down another 50%.

During those times, the idea that you have a manager trying to protect your investments may be reassuring. And here’s the twist: Their ability actually to protect your investments might be an illusion, but if that illusion keeps you in your investments long term it might become a real benefit.

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Source : MTV