How Not to Be Like the Average Investor

November 13, 2023

We want to reach for the stars. Be all we can be.

No one wants to be average.

Who wants to be the average spouse, or the average student, or the average athlete?

Average is not alluring.

I wonder though if, when it comes to investing, acting like you are smarter than the market and have your pulse on when to get in and when to get out is what creates average investors?

For example, this JP Morgan chart from 2021, shows how poorly the “average investor” investor return was over two decades.1

The average investor—see that orange column in the chart—earned only 3.6%.


That aint beating inflation by much.

What do they mean by average investor? The disclosure below (always read the fine print!) reads: “Average asset allocation investor return is based on analysis by Dalbar Inc., which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a measure of investor behavior.”

Ahhh. There we go.

It’s a measurement of investment behavior.

And that’s just where investors tend to get in trouble. It’s not so much the problem of something outside of them but the problem of something inside of them.

They are trying to guess—buying and selling based on emotion.

The “average investors” that they are measuring over the last few decades would have been better just to sit in the S&P 500 index through its ups and downs. While the average investor may have just earned enough for inflation, if one would have stayed invested the whole time one would have earned 9.5%.

The problem though with investing exclusively in the index is that it’s hard to handle the volatility. We believe that risk management is one of the most important tools for investors to implement.

Therefore, one needs a portfolio built where they can handle the volatility without giving into the emotions that are sure to come along the way.

That’s the key.

And it just might help you become above average.



1. JP Morgan’s Guide to the Markets (3Q 2022), page 63. Accessed online: