According to research by the US Group DALBAR, the average investor's return is significantly lower than the market indices. Over the past 19 years, the average US equity investor earned only 3.7% per annum and the funds they invested in returned 13.2% per annum over the same period.

          The reason why many investors fail is because they attempt to time markets, leading to dramatic underperformance. According to DALBAR, investors attempts to cash in on market gyrations. When the S&P Index rises, investors pour money into equity funds; when the S&P Index drops, the money going into equity funds declines. Emotions such as greed, fear and the herd instinct, rather than logic tend to drive the average investor's behaviour.

Source: DALBAR, Quantitative Analysis of Investor Behaviour (QAIB) study, 2005

          Attempting to time the markets can lead to dramatic underperformance. If an investor stayed invested in the S&P 500 index for 10 years up to December 31, 2001, the returned achieved would have been 13% per annum. This return was halved if the investor missed the top 15 days over the 10-year period, and the return was negative if the investor missed the top 40 days over the same 10-year period.

Still a Good Bargain

          Despite the recent declines in global equities, there are signs that the fundamentals still remain favourable. The earnings-yield gap, which measures the relative value of stocks versus bonds, shows that equities are still a better value, though less so than they were six months ago.

Source: DataStream as of April 20, 2006