"In 2024, the average equity investor earned 16.54%, while the S&P 500 returned 25.02%, a gap of 848 basis points that DALBAR called the second-largest investor performance gap of the past decade."
"The mechanism behind that gap has a name: myopic loss aversion. Investors feel losses more acutely than equivalent gains, and the more frequently they check their portfolios, the more often they encounter those losses."
"Checking a portfolio daily yields a 46% chance of a decline. Checking annually drops that probability significantly, illustrating the detrimental effects of frequent monitoring on investment behavior."
Investors often experience anxiety when checking their 401(k) balances, especially during market downturns. The SPDR S&P 500 ETF Trust has seen declines, and consumer sentiment remains low. DALBAR's analysis shows a significant gap between market returns and what average investors earn, attributed to myopic loss aversion. This phenomenon causes investors to react negatively to losses, especially when checking their portfolios frequently. The more often investors check their balances, the more likely they are to make detrimental decisions, impacting long-term returns.
Read at 24/7 Wall St.
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