For the last 20 years the average stock fund investor has managed only an annualized return of 3.2% from stocks, as compared to 8.2% annualized return of stocks in general over the same period (the Standard & Poor’s 500-stock index). This statistic, which was reported in the Sunday Business Section of the New York Times on 5/22/10, shows that investors tend to sell at the bottom of bear markets and buy at the top of bull markets.
I have made this point many times, and clients are probably tired of reading it. But a good way to avoid that psychology of buying at the top/selling at the bottom is to avert one’s eyes from gyrating stocks prices and focus them instead on dividend and interest income, which are relatively unchanging. That frame of mind tends to keep one from making mistakes.
As I write, the stock market is down 300 and I am trying to practice what I preach.