The Center for Retirement Research at Boston College has published a new study arguing that younger investors were hurt more by recent market downturns than older investors. They point out that even despite the dot.com and housing crisis downturns, older investors earned in excess of 8.5% on a conservative portfolio - well in excess of the returns achieved by younger investors since they entered the market. The reason is that the younger investors didn't get the huge push higher from 1982 - 2000.
I haven't read the study so I might be wrong but I suspect that the returns are market returns not actual investor returns. This is important because Dalbar presents data every year that shows individual investors significantly underperform markets because their emotions have them chasing the hottest sectors and capitulating at the worst possible time.
In any event the article did bring to mind a meeting with a potential client a bit over a year ago. She was upset because her portfolio was at $350,000 and it had been at $325,000. I commiserated with her and said it must be difficult when you've invested $350,000 and experience $25,000 in unrealized losses. All of sudden she straigtened up and said. "I didn't put in $350,000, I had put in $265,000 of my own money". The problem of course is that people compare their portfolios to the peak value. This happens a lot with homes. People wring their hands and bemoan the fact that their house which was valued at $450,000 in 2007 is now valued at $385,000. They forget that they paid $250,000 for it.
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