Share your discipline: investors are very fickle. But advisors can help steady that behavior--and improve their returns.(Sales Seminar)

Publication: Research

Publication Date: 01-JUL-05

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COPYRIGHT 2005 Adams Business Media

Every year since 1994, Dalbar, one of the top market-research firms in the financial-services industry, has published its study Quantitative Analysis of Investor Behavior.

Previous Dalbar studies have shown that investors significantly under-perform the numbers cited by mutual fund performance reports. In the 2005 report, Dalbar says, "Close examination of investor behavior suggests that as markets rise, investors pour cash into mutual funds, and a selling frenzy begins after a decline."

That leads to two conclusions: Investor behavior is far more important in determining actual returns than investment selection, and an important part--if not the most important part--of the financial advisor's job description is managing investment behavior, not just assets.

Can investors be educated to act more rationally? Maybe.

According to Dalbar's 2005 study, "Mutual funds were not claiming spectacular results but 2004 was a landmark year for investors." By acting more prudently, for the first time since the inception of the study, investors made money, "beating the S&P 500 even when the funds did not."

Though possibly significant, 2004 is still just a blip in...

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