DALBAR 2020 Quantitative Analysis of Investor Behavior
As 2020 progresses, there is no doubt that the COVID-19 pandemic and its impacts are unlike anything DALBAR – or the world, for that matter – has ever experienced.
The global health crisis has taken a toll on the economy and stock markets, and investors are now left with a feeling of uncertainty with regards to how they should respond with their assets.
When it comes to financial decisions, timing can be everything. DALBAR has just released the 26th annual Quantitative Analysis of Investor Behavior (QAIB) report, to help financial advisors understand the effects of investor decisions to buy, sell, and switch into or out of mutual funds.
The Importance of the QAIB
Since 1994, DALBAR’s QAIB has measured and managed behaviours that cause investors to act imprudently. The main goal of these analyses is to improve the performance of both independent investors and financial advisors in future scenarios.
In the 2020 edition of QAIB, DALBAR examines real investor returns in nearly 30 different categories of investors and covers a 30-year period, from January 1, 1990 to December 31, 2019. As such, the study showcases the effects of notable market crashes and subsequent recoveries.
These analyses are especially important during this time, as investors are met with market volatility and the potential of the “Doom Echo” – a form of loss aversion that will impede their reentry into the markets.
With more clients now turning to their financial advisors for answers to time-sensitive questions and concerns, this data will enable financial advisors to provide their clients with fresh perspectives and deliver calming messages to effectively guide them in their decision-making, especially during uncertain times.
Key Lessons That Can Shape the Present and Future
Investors are always looking for expert opinions to support the actions they take with regards to their assets, and DALBAR’s QAIB provides advisors with the tools necessary for this type of support.
Utilizing previously measured behavioral influences and past market data, the comprehensive study highlights the 10 key periods in which investors withdrew their investments during periods of market crises, which represent the 10 most severe cases of underperformance since 1984.
Of these 10 cases, the QAIB found:
- 8 cases would have produced better returns for the Average Investor one year later if they had taken no action and held on to their investments
- 1 case would have produced better results one year later if the Average Investor had purchased portfolio insurance
- 1 case would have produced better results one year later if the Average Investor had withdrawn assets
By looking at the historical data presented in the QAIB, financial advisors will learn the motivation for underperforming investment withdrawals and the outcomes of crisis periods. This knowledge can be applied to today’s current circumstances – as well as future instances – and help advisors provide suitable guidance to investors when discussing an appropriate course of action.
In addition, this knowledge will work in conjunction with an effective DALBAR Investor Panic Relief Tool (i-PRT) strategy. The i-PRT helps advisors mitigate the effects of panic selling during volatile markets and the Doom Echo, and helps to keep portfolios safe with sound alternatives to abandoning investments in a down market.
To learn more about and gain the full benefits of the 2020 QAIB, we encourage advisors and investors to visit the QAIB Store at www.QAIB.com, or contact us at firstname.lastname@example.org or 617-624-7100. You can also learn more about the DALBAR i-PRT here.