Behavior gap
TheoryDefinition
Documented gap between investor returns and the returns of the funds they hold, caused by mistimed buys and sells. Average shortfall: 1-4% per year for equity funds, 2-3% for bond funds.
Source: Dalbar QAIB studies. Implication: the cheapest way to improve returns is usually to stop trading. Default 401(k) auto-enroll plus target-date funds have measurably narrowed the behavior gap for the average saver.
Source: Dalbar QAIB studies. Implication: the cheapest way to improve returns is usually to stop trading. Default 401(k) auto-enroll plus target-date funds have measurably narrowed the behavior gap for the average saver.