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Why Does the Index Do Better Than the Average Investor?

In this week's Arista Advice, Paul L. Moffat of Arista Wealth Management explains why the index has historically done better than the average investor, and what you can do to increase your returns.

Full Transcript:

Hello welcome to this week’s Arista Advice. Hope you’re well.

The question of the week is: Paul, should we care what the financial markets do each day? That’s a terrific question. Investors are people, and people are then impatient, and have anxiety, have worries, have frustrations, have regrets, and have many other emotional feelings.

Let me share with you that no one likes to wait in line or wait longer than they have to for something, especially today when so much is just a click or two away.

Across the 30 years, ended in December 30th, 2018, the Standard and Poor’s has posted an average rate of return of 10%. During the same time period the average mutual fund stock investor only realized a 4.1% return.

Why the difference? It could partly be for many reasons, but one of the main reasons and the three main culprits why we find that the indexes do well and the average investor doesn’t do well is because of impatience and because they allow their emotions to take control of their emotional and financial decisions.

Number two they’re watching too much TV, too much news, and too much Twitter and too much Facebook, and number three reason why the indexes are outperforming the average investor is that they’re in high fees, high expenses, and they’re trading their portfolios on a frequent basis. Understand that buying and selling is friction. It messes and effects our long-term results, and it’s important to buy and hold.

So remember, the main culprits on why indexes do better than the average investor in a national study they’re not thinking long-term, they’re allowing their emotions to control their financial decisions, and they’re paying high fees and high costs, and they’re also watching too much media and too much television and worrying too much about things that they can’t control.

Hope you’re well. Have a great week and we look forward to talking to you soon.