Why most investors underperform their own investments

Here is one of the most uncomfortable facts in investing: the average investor earns less than the very funds they invest in. Studies such as DALBAR's annual analysis of investor behaviour and Morningstar's "Mind the Gap" research have found this gap year after year.

How the gap appears

The fund's return assumes you bought on day one and held. Real investors buy after strong performance — when headlines are good and prices high — and sell after losses, when fear peaks and prices are low. Repeated over years, buying high and selling low costs a significant part of the return.

The usual culprits

• Recency bias — expecting the recent past to continue.
• Loss aversion — losses hurt roughly twice as much as equal gains feel good, which makes us sell in panic.
• Herding — doing what everyone else is doing, especially on social media.
• Overconfidence — trading too often after a few wins.

The cure: a process you trust

The investors who keep their returns are those with rules written in advance: what to hold, when to act, how often to look. A rules-based strategy removes the decision from the emotional moment. It does not need to be complicated — it needs to be followed.

Key takeaways

• The behaviour gap is real and persistent.
• It comes from buying after gains and selling after losses.
• Written rules and a fixed routine are the best defence.

By Dr. Harry Hamann · 5 min read