Since 1994, DALBAR's Quantitative Analysis of Investor Behavior (QAIB) has measured the effects of investor decisions to buy, sell and switch into and out of mutual funds over short and long-term timeframes. These effects are measured from the perspective of the investor and do not represent the performance of the investments themselves. The results consistently show that the average investor earns less – in many cases, much less – than mutual fund performance reports would suggest.
The goal of QAIB is to improve performance of both independent investors and financial advisors by managing behaviors that cause investors to act imprudently. QAIB offers guidance on how and where investor behaviors can be improved.
The 27th Annual QAIB examines real investor returns in equity, equity index, fixed income and asset allocation categories of investors. The analysis covers the 20-year period to December 31, 2019, which encompasses the aftermath of the crash of 1987, the drop at the turn of the millennium, the crash of 2008, plus recovery periods leading up to the most recent bull market.
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The best financial professionals double as behavioral finance coaches of their clients. When markets are down or even volatile, questions will arise from concerned clients and perspective will be needed. The QAIB report and materials give advisors the tools to tell a story, put things into perspective, and deliver the calming messages that are needed to mitigate return-destroying behavior. Such messages include:
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Download the Abstract for QAIB Variable Annuity here or email us for more information at QAIB@dalbar.com.
Most QAIB products except the Advisor Edition allow the purchaser to use its contents in customized communications for production of a selected number of copies (see Copyright Agreement within the deliverable). The Advisor Edition does not include the rights to use its contents in customized communications.
The Advisor Edition can only be distributed in its entirety to the Advisor’s clients. However, an additional Copyrights Add-on may be purchased for $250 that allows for data to be used in customized communications.
The Full Study, for $975 is the complete report and includes copyrights for purchasers to use the data in customized communications for up to 100 copies (for higher level licensing email email@example.com).
The Advisor Edition for $99 is an investor summary and excludes data found in the Full Study to make it more comprehensible to the average investor. This report is able to be customized for one Advisor and can be distributed in its entirety to the Advisor’s clients. Additional copyrights may be purchased for $250 that allow for data to be pulled from this report for customized communications.
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No. However, the Advisor Edition may be posted in its entirety under a password protected URL for the Advisor to share with clients.
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QAIB uses data from the Investment Company Institute (ICI), Standard & Poor’s, Bloomberg Barclays Indices and proprietary sources to compare mutual fund investor returns to an appropriate set of benchmarks. The study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “Average Investor.” Based on this behavior, the analysis calculates the “average investor return” for various periods. These results are then compared to the returns of respective indices.
QAIB uses the aggregate balances of mutual fund investors each month to calculate investor profits or loss after all performance limiting factors are considered. This reflects the market gain or loss that the average investor would see on a statement. Additional research is used to identify solutions that reduce the underperformance.
Four factors cause the gap between investor returns and an appropriate index:
Voluntary investor behavior includes:
QAIB measures assets after all costs and expenses are deducted and flows after all sales charges are paid. While some measures attempt to make adjustments for differing share classes and expense ratios, QAIB makes no such adjustments since only net assets and net flows are used.
No. QAIB reports the returns that are most visible to most investors, the investor’s personal return and the most widely used indexes.
The decision to compare the most visible measures of return allows QAIB to reflect the investors' perception and therefore to properly define the problem.
Having defined the problem, methods have been developed and are being developed to narrow the gap between these two measures. QAIB presents an "investor's" view of the fund.
Asset weighted returns by definition ignore the time during which the investor is out of the investment and do not provide a measure of the lost opportunity. As such asset weighted returns are a “fund’s” view, reflecting only returns when money is in the fund.
Soft dollars can be used to pay for this research. The QAIB research directly benefits investors and there is no distinction made in the regulations between economic research and behavioral research.
The average investor refers to the universe of all mutual fund investors whose actions and financial results are restated to represent a single investor. This approach allows the entire universe of mutual fund investors to be used as the statistical sample, ensuring ultimate reliability.
QAIB quantitatively measures sales, redemptions and exchanges (provided by the Investment Company Institute) and describes these measures as investor behaviors. The measurement of investor behavior is the net dollar volume of these activities that occur in a single month during the period being analyzed.
QAIB calculates investor returns as the change in assets, after excluding sales, redemptions, and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses and any other costs. After calculating investor returns in dollar terms (above) two percentages are calculated:
Total return rate is determined by calculating the investor return dollars as a percentage of the net assets, sales, redemptions and exchanges for the period.
Annualized return rate is calculated as the uniform rate that can be compounded annually for the period under consideration to produce the investor return dollars.
The Average Equity Fund Investor is comprised of a universe of both domestic and world equity mutual funds. It includes growth, sector, alternative strategy, value, blend, emerging markets, global equity, international equity, and regional equity funds.
The Average Fixed Income Fund Investor is comprised of a universe of fixed income mutual funds, which includes investment grade, high yield, government, municipal, multi-sector, and global bond funds. It does not include money market funds.
The Average Asset Allocation Fund Investor is comprised of a universe of funds that invest in a mix of equity and debt securities.
The Average [Sector] Fund Investor is comprised of a universe of funds that invest solely in companies that operate in related fields or specific industries. The following Average Sector Fund Investors were referenced in this report: Consumer, Health, Financial, Tech/Telecom, Real Estate, Precious Metals, Utilities, and Natural Resources
The Average [Capitalization and Style] Fund Investor is comprised of a universe of funds that are categorized by the types of companies in which they invest:
Small-cap mutual funds invest primarily in companies with market capitalizations of up to $2-2.5 billion.
Mid-cap mutual funds invest primarily in companies with market capitalization that generally ranges from $1 billion to $7 billion or in companies with both small and medium market capitalization.
Large-cap mutual funds invest primarily in companies with market capitalizations which are generally more than $5 billion or in companies with both medium and large market capitalizations.
Growth mutual funds invest primarily in common stock of growth companies, which are those that exhibit signs of above-average growth, even if the share price is high relative to earnings/intrinsic value.
Value mutual funds invest primarily in common stock of value companies, which are those that are out of favor with investors, appear underpriced by the market relative to their earnings/intrinsic value, or have high dividend yields.
Blend mutual funds invest primarily in common stock of both growth and value companies or are not limited to the types of companies in which they can invest.
The Average Equity Index Fund Investor is comprised of a universe of funds that are designed to track the performance of a U.S. equity market index.
The Average Target Date Fund Investor is comprised of a universe of funds that follow a predetermined reallocation of assets over time based on a specified target retirement date.
The Average Alternative Strategies (Alt-) Fund Investor is comprised of a universe of funds that employ alternative investment approaches like long/short, market neutral, leveraged, inverse, or commodity strategies to meet their investment objective. The following Average Alternative Strategies Fund Investors were referenced in this report: Alt-Domestic Equity, Alt-World Equity, Alt – Asset Allocation (“AA”), and Alt-Multisector Bond.
The Guess Right Ratio is the frequency that the average investor makes a short-term gain. One point is scored each month when the average investor has net inflows and the market (S&P 500) rises in the next month. A point is also scored when the average investor has net outflows and the market declines in the next month. The ratio is the number of points scored as a percentage of the total number of months under consideration.
Retention Rate reflects the length of time the average investor holds a fund if the current redemption rate persists. It is the time required to fully redeem the account. Retention rates are expressed in years and fractions of years.
The monthly value of the consumer price index is converted to a monthly rate. The monthly rates are used to compound a “return” for the period under consideration. This result is then annualized to produce the inflation rate for the period.
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After years of lagging behind index funds, active managers have long stressed that they would show their worth when volatility hit. Now it has, as the coronavirus has roiled markets.
It is still too early for anyone to say ''I told you so,'' but a quantitative study of investors' behavior during the first half of this year by the financial research firm Dalbar may give defenders of active management some ammunition.
Active equity fund investors outperformed equity index fund investors and the S&P 500 in the second quarter, and they also withdrew less assets than their peers, according to a Dalbar analysis released today. The cash flow pattern in the second quarter broke an eight-year trend, the firm said.
''The average active equity fund investor outperformed the average equity index fund investor by 223 bps in the second quarter (20.97% for active versus 18.74% for index),'' the Massachusetts-based financial date company reported.
Nobody knows if we have reached the turning point in the year's pandemic-induced market meltdown. The markets are not quite as scary as they were at the beginning of March when some markets lost nearly 20% of their value in a single day.
Some recoveries are rather swift, while others take a little more time, but there is one way to know when the market has reached its bottom … just kidding .... there is no way of knowing, and that's exactly why the average investor should not be bailing out of their positions when storm seas get rough.
By its very nature, investing in stocks -- both in the U.S. and internationally -- courts a certain amount of portfolio volatility. Trying to make buy or sell decisions based on short-term fluctuations, however, can create an extremely uncomfortable investment experience over time. Of late, major financial publications across the country have been warning of severe repercussions for investors after an outset of coronavirus cases. In such a Jekyll and Hyde period, stock prices dropped. The next moment, values went up. The one constant: markets twisted and turned, churning at a seemingly dizzying pace.
There are numerous ways investors can lose their hard-earned money in the stock market.
Statistically, you and I are terrible investors...
This unfortunate reality is the takeaway of research done by Dalbar Inc., a company that studies investor behavior and their market returns.
What Dalbar has found is that the average investor woefully underperforms the broad market.
Investment consultancy Dalbar’s latest research suggests that it is a mistake for advisors to assume that investors have a static risk tolerance. To the contrary, it changes constantly – on the basis of both market conditions and the client’s constantly shifting personal status. In this podcast interview (14:07), Dalbar’s Louis Harvey suggests that advisors need to constantly assess and re-assess their clients' risk tolerance, and engage in behavioral coaching accompanying a tolerable asset allocation.
Forget about getting everything right. Most people are so consistently wrong that merely avoiding major errors is enough to set you apart from the pack.
That is the message in the latest data from Dalbar, a Massachusetts research firm that has been studying the behavior of mutual fund investors for 25 years.
If you want to be an investor, don’t be an average one. It can very well be a ridiculous proposition. The individual investors on an average would make mistakes, just like they did last year and this is evident from the report that was published in the latest report of Dalbar, the financial research company.
The latest Quantitative Analysis of Investor Behavior study from Dalbar Inc. showed that average investors lagged the Standard & Poor’s 500 Index both in good times and bad during 2018, but investors got it the most wrong late in the year when the market got ugly.
Dalbar’s study, which has measured investment results compared to the market for a quarter-century now, has long shown that investments do better than investors. The problem is that investors typically buy into stocks and funds only after there has been a run of good performance and bail out when they suffer declines.
They did it again. The average investor took money out of the stock market in 2018, a year that suffered from two painful corrections. And their investment performance was worse than the market’s, according to a survey by research firm Dalbar.
When investors panic, they can shoot themselves in the foot. New data suggests that’s what happened last year.
It’s no secret that 2018 was a wild year for investors in the stock market. The S&P 500 hit a record high by late September, before falling more than 7% in October and more than 9% in December.