Unit 1 · Level 4 · The behavior gap
Worse than your own fund
A fund can return 8% a year while the average person holding it earns only 6%. Same fund, same decade, different result. Studies like Morningstar's 'Mind the Gap' repeatedly find a gap of roughly 1-2% per year between fund returns and investor returns. The difference isn't fees or fraud. It's timing: money tends to arrive after the good years and leave after the bad ones.
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What you get asked
How can the average investor in a fund earn LESS than the fund itself?
The fund's return assumes you held the whole ride. Real money flows in near tops and out near bottoms, so the average euro in the fund catches more of the falls and less of the recoveries.
Studies repeatedly find investors earn roughly ___ per year less than the funds they own.
Roughly 1-2% a year sounds small, but compounded over 30 years it can consume a huge slice of your final pot.
Match each term to what it measures
Two returns for one fund: the brochure number, and the number real humans took home. The gap between them is behavior, measured in euros.
A fund returns 8%/yr for a decade. Ana buys after the two best years and sells during the worst one. Her likely result?
Ana bought high and sold low, the classic pattern behind the behavior gap. The fund's 8% belonged to whoever simply stayed in it.
What's the most honest takeaway from the behavior-gap research?
Not the market and not the fund. The biggest threat is the hand holding the buy and sell buttons, and this whole unit is about tying that hand down kindly. 🐜
The rest of this unit
Funds do fine; their investors do worse. Close the gap between you and your own money.