Behavioral Finance and Investor Psychology

Dalbar's annual Quantitative Analysis of Investor Behavior consistently shows that the average equity fund investor earns 3-4 percent less per year than the funds they invest in. Over 30 years, the S&P 500 returned approximately 10 percent annually while the average equity fund investor earned only 6-7 percent. This gap—called the behavior gap—results from buying after prices rise (greed) and selling after prices fall (fear). The 2020 pandemic crash saw $326 billion of equity fund outflows in March and April, right at the market bottom. Investors who sold missed the 70+ percent recovery over the following year.