Buy & Hold Returns More Than Double Average.

BOSTON--(BUSINESS WIRE)--Dec. 7, 1999--

Investors who bought and held stock mutual funds earned nearly 2 1/2 times that of average investors over the past 15 years, according to the 1999 DALBAR Quantitative Analysis of Investor Behavior (QAIB) study. DALBAR found that investors who bought and held stock mutual funds earned an average of 17.9 percent over the 15 years ended December 1998 while average investors earned just 7.25 percent.

Louis S. Harvey, the president and founder of DALBAR, said the difference in returns can be attributed largely to irrational behavior on the part of investors. "Investors who tried to time the market, who bought and sold frequently, who panic-sold during down markets robbed themselves of the full earning potential of mutual funds."

Although the effects of earlier mistakes are still apparent, Harvey said mutual fund investors are behaving more rationally today. And he expressed hope that investors might make up the difference over time if they continue to buy and hold and/or invest using dollar-cost averaging.

For instance, Harvey said the average 1998 stock fund investor held his funds for three years, a tad higher than the 2.8-year average over the length of the study. In addition, he said the average holding period has increased by 5.2 percent, or 19 days per year over the last 15 years. The average holding period, or retention rate, is a key determinant of investor returns.

Harvey attributed the slight improvement in retention to efforts by the financial services industry and media to educate investors about the dangers of trying to time the market and the benefits of dollar-cost averaging in defined contribution plans and other investment vehicles. "The mutual fund industry and the media should be credited for the billions of dollars investors have saved through education of the last five years," said Harvey.

The 1999 QAIB Study shows that the practice of redeeming equity mutual funds during adverse market swings has been eliminated. In spite of the market volatility in 1998 and 1999 redemption rates remained the same as in previous years. Closer examination shows a modest reversal of the behavior, where investors are redeeming somewhat less in times of turbulence.

DALBAR first conducted the Quantitative Analysis of Investor Behavior in 1994. The study examines flows into and out of mutual funds as well as the changes in asset levels to determine the returns actually earned by investors. The investor returns are then compared to the results of an appropriate index. The study has revealed the relationship between investor returns and retention.

DALBAR, Inc. is a Boston-based independent research firm specializing in financial services.