Every year the US-based research firm Dalbar does a study that tries to quantify the impact of investor behaviour on real-life returns by comparing investors’ earnings to the average investment (using the S&P 500 as a proxy).
The study utilises the net of aggregate managed fund sales, redemptions and exchanges each month as a measure of investor behaviour. This method of calculation captures realised and unrealised capital gains, dividends, interest, trading costs, sales charges, fees, expenses and any other costs. These behaviours are then used to simulate the “average investor”. Based on this behaviour, the analysis calculates the “average investor return” on an annualised basis.