Minimize Your Gap
A recent study by Morningstar, titled "Mind the Gap 2024," sheds light on a crucial issue that many investors may not even realize exists—the gap between the potential returns of their investments and the actual returns they experience. Over the 10-year period ending December 31, 2023, the average investor lost about 15% of their total return due to various factors that hindered their portfolio’s performance.
This study serves as an important reminder for all of us to take a closer look at our own investment habits. While Wall Street often touts its ability to beat the market, Coffeehouse Investors know that chasing market-beating returns is a fool's game. The real challenge—and one we should all focus on—is minimizing the (underperformance) gap between our portfolio’s performance and the established benchmarks.
One of the key findings of the Morningstar report is the underperformance of investors who hold exchange-traded index funds (ETFs) compared to those who own traditional open-end index funds. The flexibility and ease of trading ETFs can lead to excessive trading, likely eroding returns. This behavior is a prime example of how investor actions—often driven by emotion rather than strategy—can create a gap in performance.
Do you know the gap in your portfolio? Reflect on your investment decisions and consider how they may have contributed to any underperformance. By understanding and addressing these gaps, it is quite possible you can help improve your investment outcomes and get closer to achieving your financial goals.
Remember, minimizing the gap is not just about what you invest in, but how you manage those investments over time. Stay disciplined, avoid the temptation to trade frequently, and keep your long-term objectives in mind.
If you would like to understand the gap in your portfolio or build an investment strategy that helps move your financial life forward, let's connect on a complimentary strategy call.