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Volatility is Not Your Friend

Volatility is not a friend of the average investor. A famous study released in 2003 by DALBAR, a leading financial services marketing research firm, revealed that over the preceding 19 years the unmanaged S&P 500 Index had earned an average of 12.22% annually. Yet, over that same period, the average equity mutual fund investor earned a paltry 2.57% annually. The huge performance differential had little to do with the returns of the average equity mutual fund, which performed just shy of the index itself. It had everything to do with investors being unable to manage their own emotions - moving into funds near market tops and bailing out at market lows.