Investing Blog Roundup: Another Challenge to DALBAR’s Math

Since 1994, research firm DALBAR has published an annual report that shows that mutual fund investors dramatically underperform their own mutual funds due to poor timing decisions (i.e., buying and selling at disadvantageous times), and their report is frequently cited within the investment industry. The underperformance that DALBAR reports, however, is quite a bit larger than the underperformance that Morningstar reports on the same topic.

Two months ago, Advisor Perspectives published an article from researcher Wade Pfau asserting that the difference is primarily due to DALBAR just doing the math incorrectly. DALBAR replied — disagreeing of course. But they they did not really provide any evidence or examples of how they do their math and why it would make sense to do it the way they do it.

This week, David Blanchett (head of retirement research for Morningstar) performed an independent calculation of investor performance to see whether his findings would mirror Morningstar’s official findings or DALBAR’s findings. The result is that we now have one more source indicating that DALBAR’s findings are way off the mark.

The takeaway: It looks like mutual fund investors aren’t nearly as dumb as some prominent sources would have you believe.

• Testing DALBAR’s Claims about Mutual Fund Investors from David Blanchett
• DALBAR’s reply

Other Investing Articles

• Sorry, You Probably Don’t Have a Portfolio Emergency from Christine Benz
• How Much Can I Expect to Earn on My Retirement Savings? from Walter Updegrave
• Retirement Ball’s in Employers’ Court from Kim Blanton

Thanks for reading!