The latest proof we're our own worst enemy when investing:
Bottom Line: My first rule of money is to never let your money and emotions cross paths. That's because most will make emotional mistakes without discipline and if you think back to financial regrets you have they were most likely realize this to be true. This is on display in a major way with the latest research complied by US Bank with Morningstar data. Over the past twenty years here are the average annual rates of return by asset class in the United States:
- REITS: 9.8%
- S&P 500: 7.7%
- High yield bonds: 7%
- US Bonds: 5.3%
- Municipal Bonds: 5%
- Commodities (Gold, Silver, Oil, etc.): -1.9%
Now the past twenty years have been skewed a bit by the end of the dot-com era and the Great Recession. The result is that stock performance has been slightly lower than its historic average and bonds a bit higher but it paints a pretty clear picture. Everything but commodities have performed well on average over a twenty-year time horizon. So how has the average self-advised investor fared?
2.3%. That's it. 2.3%. Yikes. It's clear that the average investor has made a series of extremely costly emotional mistakes. To illustrate the point, consider this... The average balanced portfolio of investments over the past twenty years has provided a 7.2% rate of return.
On $100,000 invested over 20 years:
The average investor has: $158,337
The average of all US investment classes produced: $420,257
The average stock market investments produced: $464,169
That's an emotional mistake of around $300,000 on just $100k alone. It's why it's critical to pragmatically and intentionally save and invest and to never let your money and emotions cross paths.