Quantitative Analysis of
Investor Behavior
For the period ending: December 31, 2022
Compliments of:
Amir Monsefi, CEPA, CPFA, SE-AWMA®, CPWA®
AIRE Advisors
9350 Wilshire Boulevard, Suite 200
3102772474
[email protected] 5 Mount Royal Avenue
Suite 380
Marlborough, MA 01752
617.723.6400
www.dalbar.com
Compliments of Amir Monsefi, CEPA, CPFA, SE-AWMA®, CPWA®
Contents
Introduction ..................................................................................................................................... 3
Executive Summary ......................................................................................................................... 5
Behind The Numbers… .................................................................................................................... 7
Sellers vs. Holders........................................................................................................................ 8
Average Investor Returns in 2022 ............................................................................................... 9
2022 In Perspective ................................................................................................................... 10
Retention Rates ......................................................................................................................... 11
Guess Right Ratio....................................................................................................................... 12
APPENDICES................................................................................................................................... 13
GLOSSARY ...................................................................................................................................... 14
RIGHTS OF USAGE AND SOURCING INFORMATION ....................................................................... 16
Past performance is no guarantee of future results.
© 2023 Quantitative Analysis of Investor Behavior 2
Compliments of Amir Monsefi, CEPA, CPFA, SE-AWMA®, CPWA®
Introduction
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 time frames. 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.
This 29th Annual QAIB report examines real investor returns from 1985 through the end
of 2022, which encompasses the crash of 1987, bull market of the 90’s, the drop at the
turn of the millennium, the crash of 2008, recovery periods leading up to the most
recent bull market, the unprecedented events of 2020, and the recent market struggles
of 2022.
Importance of QAIB
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:
• The prudence of a long-term, buy and hold approach
• The folly of measuring investment success against statistical benchmarks
• Awareness of common behavioral influences
• Lessons from past markets
• The importance of investing assets as early as possible
Past performance is no guarantee of future results.
© 2023 Quantitative Analysis of Investor Behavior 3
Compliments of Amir Monsefi, CEPA, CPFA, SE-AWMA®, CPWA®
About DALBAR, Inc.
DALBAR, Inc. is the financial community’s leading independent expert for evaluating,
auditing and rating business practices, customer performance, product quality and
service. Launched in 1976, DALBAR has earned the recognition for consistent and
unbiased evaluations of investment companies, registered investment advisers,
insurance companies, broker/dealers, retirement plan providers and financial
professionals. DALBAR awards are recognized as marks of excellence in the financial
community.
Methodology
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. Covering the period from January 1, 1985
to December 31, 2022, 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.
A glossary of terms and examples of how the calculations are performed can be found in
the Appendices section of this report.
The QAIB Benchmark and Rights of Usage
Investor returns, retention and other industry data presented in this report can be used
as benchmarks to assess investor performance in specific situations. Among other
scenarios, QAIB has been used to compare investor returns in individual mutual funds
and variable annuities, as well as for client bases and in retirement plans. Please see the
“Rights of Usage” section in the Appendices for more information and appropriate
citation language.
Past performance is no guarantee of future results.
© 2023 Quantitative Analysis of Investor Behavior 4
Compliments of Amir Monsefi, CEPA, CPFA, SE-AWMA®, CPWA®
Executive Summary
➢ Leading into 2022, the Average Equity Fund Investor experienced gains of over 18% in
2021, but trailed the equity markets by over 10% that year.
➢ The Average Equity Fund Investor continued to be a net withdrawer of assets in 2022 for
the 7th year in a row.
➢ The Average Fixed Income Fund Investor was a net withdrawer of assets for the first time
since 2000. In 2022, the Average Fixed Income Fund Investor withdrew 7.37% of assets.
This is the largest fixed income withdrawal in a given year ever recorded by QAIB, going
back to 1985.
➢ The Average Investor has maintained roughly a 70/30 equity to fixed income mix since
2017. In 2022, equity allocations decreased slightly to 71.65%.
➢ The Average Equity Fund Investor finished the year with a loss of -21.17% versus an S&P
500 loss of -18.11%; an investor return gap of 306 bps.
➢ The gap of 306 basis points was the 3rd smallest annual Investor Gap in the last 10 years.
Avg. Avg. Fixed Avg. Asset Bloomberg-
Equity Income Allocation Barclays
Fund Fund Fund S&P Aggregate
Investor Investor Investor 500 Bond Index Inflation
(%) (%) (%) (%) (%) (%)
30 Year 6.81 -0.14 2.53 9.65 4.55 2.50
20 Year 9.00 -0.29 3.10 9.80 3.10 2.52
10 Year 9.33 -1.32 3.95 12.56 1.06 2.63
5 Year 5.17 -2.31 1.67 9.42 0.02 3.79
3 Year 4.05 -5.15 0.38 7.66 -2.71 4.93
12 Month -21.17 -13.79 -14.79 -18.11 -13.01 6.47
Past performance is no guarantee of future results.
© 2023 Quantitative Analysis of Investor Behavior 5
Compliments of Amir Monsefi, CEPA, CPFA, SE-AWMA®, CPWA®
Executive Summary (continued)
➢ The Average Fixed Income Fund Investor finished the year with a loss of -13.79% versus a
BloombergBarclays Aggregate Bond Index loss of -13.01%; an investor return gap of 78 bps.
➢ Inflation continued to be a significant factor in 2022, registering at 6.47% for the year.
➢ The Average Equity Fund Investor with a $100,000 portfolio at the beginning of 2022
withdrew $2,150 and lost an additional $20,711 throughout the year. This resulted in an
ending balance of $77,139.
➢ A buy and hold strategy of $100,000, earning S&P returns, would have lost $18,111 and
ended with a balance of $81,889.
➢ The S&P 500 loss of -18.11% in 2022 is an extremely rare occurrence. Over the past 50
years, only 3 years experienced S&P losses greater than 2022; those were 1973, 2002 and
2008.
➢ When examining all years in which the S&P 500 lost 10% or more, we find that recoveries
tend to occur quickly. There were 5 years (other than 2022) in which the S&P lost double
digit percentage points (1973, 1974, 2001, 2002, 2008). Out of those 5 occurrences:
o Twice, the markets recovered in the next year (1974, 2002)
o Once, it took 3 years to recover (1973)
o Twice, it took 4 years to recover (2001, 2008)
➢ The Average Equity Fund Investor retention rates averaged 4.25 years in 2022. This was a
decrease from a 2021 spike to 4.36 years.
➢ Retention rates decreased for the Average Fixed Income Fund Investor in 2022. For bond
investors, Retention Rates slumped from 3.44 years to 2.12 years. This marked the greatest
decline in Retention Rates for the Average Fixed Income Fund Investor since QAIB began
tracking such rates in 1985.
➢ The Average Asset Allocation Fund Investor Retention Rates dropped significantly in 2022
as well. Retention rates fell from 5.45 in 2021 to 4.37 years in 2022. This was the largest
decrease in Retention Rates for asset allocation investors since 1994.
Past performance is no guarantee of future results.
© 2023 Quantitative Analysis of Investor Behavior 6
Compliments of Amir Monsefi, CEPA, CPFA, SE-AWMA®, CPWA®
BEHIND THE NUMBERS…
INVESTOR PSYCHOLOGY
When discussing investor behavior, it is helpful to first understand the specific thoughts
and actions that lead to poor decision-making. Investor behavior is not simply buying
and selling at the wrong time, it is the psychological traps, triggers and misconceptions
that cause investors to act irrationally. That irrationality leads to buying and selling at
the wrong time, which leads to underperformance.
There are 9 distinct behaviors that tend to plague investors based on their personal
experiences and unique personalities.
Loss Aversion Expecting to find high returns with low risk
Narrow Framing Making decisions without considering all
implications
Mental Taking undue risk in one area and avoiding rational
Accounting risk in another
Diversification Seeking to reduce risk, but simply using different
sources
Anchoring Relating to the familiar experiences, even when
inappropriate
Optimism Belief that good things happen to me and bad
things happen to others
Media Response Tendency to react to news without reasonable
examination
Regret Treating errors of commission more seriously than
errors of omission
Herding Copying the behavior of others even in the face of
unfavorable outcomes
Past performance is no guarantee of future results.
© 2023 Quantitative Analysis of Investor Behavior 7
Compliments of Amir Monsefi, CEPA, CPFA, SE-AWMA®, CPWA®
Sellers vs. Holders
The graphs below compare two hypothetical investors. The first hypothetical investor has a
$100,000 equity portfolio that is held throughout the year of 2022, earning returns equal to the
S&P. The second hypothetical investor also starts with a $100,000 equity investment, but cash
flows and returns mimic proportionally that of the Average Equity Fund Investor. The graphs
provide a visual of both investors’ total contributions and account balance throughout the year
of 2022.
Past performance is no guarantee of future results.
© 2023 Quantitative Analysis of Investor Behavior 8
Compliments of Amir Monsefi, CEPA, CPFA, SE-AWMA®, CPWA®
Average Investor Returns in 2022
The investor gap for all types of investors in 2022 was relatively modest. For equities, the
Average Investor lost -21.17% compared to a market loss of -18.11%. Investors lost on average
about 3% more than the market. While not insignificant, only two years out of the past 10
yielded a smaller investor gap. Those years were 2017 and 2020; but unlike 2022, both of those
relatively narrower gaps occurred during strong markets (21.83% S&P return in 2017 and
18.40% S&P return in 2020). The graph on page 8 displays the investor gaps for equity investors
since 1985.
The Average Fixed Income Fund Investor exhibited signs of panic selling but managed to lose
only 0.78% more than the general bond market. The Average Fixed Income Investor lost -13.79%
in 2022 versus the Bloomberg Barclays Aggregate Bond Index loss of -13.01%.
The Average Asset Allocation Investor may have been the biggest winner in 2022. The Average
Asset Allocation Fund Investor holds a mix of equity and fixed income securities. These investors
typically earn returns somewhere between the Average Equity Fund Investor and the Average
Fixed Income Fund Investor. In 2022, the Average Asset Allocation Fund Investor mitigated
losses well by experiencing losses much closer to that of the fixed income market than the
equity market. The Average Asset Allocation Fund Investor suffered losses exactly 1% greater
than the Average Fixed Income Fund Investor and mitigated 6.38% of the losses experienced by
the Average Equity Fund Investor.
Past performance is no guarantee of future results.
© 2023 Quantitative Analysis of Investor Behavior 9
Compliments of Amir Monsefi, CEPA, CPFA, SE-AWMA®, CPWA®
2022 In Perspective
After a year like 2022, it is important to put the events into historical perspective to understand
(1) how rare a -18% return is historically speaking and (2) how quickly the markets generally
bounce back from large losses.
Small Odds of Large Market Losses
The table below is designed to provide a simple, visual portrayal of the S&P 500 return
distributions over the past 50 years. The last 50 years are displayed in ascending order of annual
S&P return. The far left displays the worst year in the equity markets over the past 50 years
(2008: -37.0%). The far right displays the best year in the equity markets in the last half century
(1995: 37.6%).
A year like 2022 is exceedingly rare. As one can see from the graphic below, only 3 years out of
the past 50 registered lower S&P returns than 2022. Only 11 years out of the past 50 have
resulted in any losses at all. And while there have been only 6 years in which the S&P has lost
double digit percentage points, there have been 9 years in which the S&P has advanced more
than 30%.
S&P Annual Returns Last 50 Years
Recovery Times
If we look back at the worst years over the past 50 years, we can gather more perspective on
how long it took markets to recover their losses in a given year.
➢ In 2008, the S&P lost -37% and the index was back in the green by the end of 2012.
➢ In 1974, the S&P lost -26.5% and was back in the green by the end of 1975, the very
next year thanks to a 37% gain in 1975. This dates back before QAIB calculates Average
Investor Returns, but one can image that many investors missed out on some of that
1975 recovery.
➢ In 2002, the S&P 500 lost -22.1% and was back in the green the very next year thanks to
a 28% gain in 2003.
➢ In 1973, the S&P lost -14.7% and took a bit longer to get back into positive territory due
to an even worse year in 1974 (-26.5%). Nonetheless, the S&P 500 was back above
water by the end of 1976, just 3 years later.
➢ In 2001, the S&P 500 lost -11.9% and by the end of 2005 was back above where it
started. Like the 2008 collapse, it took 4 years for the index to retrace its steps. This
represents the worst case scenario over the past 50 years.
Past performance is no guarantee of future results.
© 2023 Quantitative Analysis of Investor Behavior 10
Compliments of Amir Monsefi, CEPA, CPFA, SE-AWMA®, CPWA®
Retention Rates
Historically, the Average Investor has failed to realize the long-term benefits of asset ownership
because they do not stay invested in any given investment for a long enough period of time.
Retention Rates measure cash outflows in proportion to assets to arrive at the length of time
the average investor holds a fund if the current redemption rate persists. Historically, Retention
Rates increase when the market is rising and contract during market downturns.
The Average Equity Fund Investor showed little signs of panic during tumultuous year of 2022.
Equity investors withdrew 2.15% of assets in 2022, but this was a lower level of withdrawals
than any year since 2018. Retention Rates also show that equity investors were somewhat
unphased by the market downturn. This may explain why the investor gap was not as absurd as
years in the past. While Retention rates contracted by almost a full year during the market
turmoil of 2020, Retention Rates dropped by only 0.11 years, or 40 days in 2022.
On the other hand, the Average Fixed Income Investor showed serious signs of panic.
Withdrawal rates were at the highest rate (-7.37% of assets) ever recorded by DALBAR (since
1985). Retention Rates contracted from 3.44 years 2.12 years, a 1.32 year drop. This was the
largest drop in Retention Rates for the Average Fixed Income Investor ever recorded by DALBAR.
Past performance is no guarantee of future results.
© 2023 Quantitative Analysis of Investor Behavior 11
Compliments of Amir Monsefi, CEPA, CPFA, SE-AWMA®, CPWA®
The Average Asset Allocation Fund Investor also had a significant retraction in Retention Rates
along with heavy withdrawals throughout the year. In 2021, Retention Rates were nearing an
all-time high at 5.45 years before falling to 4.37 years in 2022.
Guess Right Ratio
For 29 years, DALBAR has analyzed investors’ market timing successes and failures through their
net purchases and sales. This form of analysis, known as the Guess Right Ratio, examines fund
inflows and outflows to determine how often investors correctly anticipate the direction of the
market the following month. Investors guess right when a net inflow is followed by a market
gain, or a net outflow is followed by a decline.
Investors have guessed right at least half the time in 13 out of the last 20 years, and guessed
correctly exactly half the months of 2022. Unfortunately for the Average Investor, whether they
guess right or wrong, it seldom produces superior gains either way because the dollar volume of
bad guesses exceeds the dollar volume of right guesses. Even one month of wrong guesses can
wipe out several months of right ones.
Past performance is no guarantee of future results.
© 2023 Quantitative Analysis of Investor Behavior 12
Compliments of Amir Monsefi, CEPA, CPFA, SE-AWMA®, CPWA®
APPENDICES
1. Glossary
2. Rights of Usage and Sourcing Information
Past performance is no guarantee of future results.
© 2023 Quantitative Analysis of Investor Behavior 13
Compliments of Amir Monsefi, CEPA, CPFA, SE-AWMA®, CPWA®
GLOSSARY
Average Investor
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.
[Average] Investor Behavior
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.
[Average] Investor Return (Performance)
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 investor return rate for the period
➢ Annualized investor return rate
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.
Average Equity Fund Investor
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.
Past performance is no guarantee of future results.
© 2023 Quantitative Analysis of Investor Behavior 14
Compliments of Amir Monsefi, CEPA, CPFA, SE-AWMA®, CPWA®
Average Fixed Income Investor
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.
Average Asset Allocation Investor
The Average Asset Allocation Fund Investor is comprised of a universe of funds that invest in a
mix of equity and debt securities.
Guess Right Ratio
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
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.
Inflation Rate
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.
Past performance is no guarantee of future results.
© 2023 Quantitative Analysis of Investor Behavior 15
Compliments of Amir Monsefi, CEPA, CPFA, SE-AWMA®, CPWA®
RIGHTS OF USAGE AND SOURCING INFORMATION
This Report is the property of DALBAR, Inc. and contains proprietary, copyrighted material.
Advisors with a subscription to DALBAR’s QAIB Advisor Studio have the copyrights to distribute
printed or electronic copies of this Report to retail investors. Notwithstanding the foregoing, the
Report may not be distributed, reproduced, publicly displayed, or digitally transmitted without
the express, written consent of DALBAR, Inc.
This Report does not include copyrights to distribute derivative works containing Report
content.
For questions about licensing, please contact Emily Kunka at [email protected].
This study was conducted by an independent third party, DALBAR, Inc. A
research firm specializing in financial services, DALBAR is not associated with
AIRE Advisors. The information herein is believed to be reliable, but accuracy
and completeness cannot be guaranteed. It is for informational purposes only
and is not a solicitation to buy or sell securities.
Past performance is no guarantee of future results.
© 2023 Quantitative Analysis of Investor Behavior 16
