3 Investing Moves That Can Undermine Long-Term Returns

Many personal finance truths are uncomfortable. For example, the stock market has delivered roughly between 10% and 12% annualized returns since 1928 when dividends are reinvested, yet most everyday investors never come close to capturing those returns.

So what gives? It seems, like the house, the market always wins while many investors don’t. Here are the three big reasons why.

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Not Giving Your Investment Strategy Time To Work

Patience is the rarest asset in investing, but ironically, the most valuable. However, 90% of active U.S. large-cap fund managers underperformed the S&P 500 over the last 15 years, and the 10% who did beat it didn’t stay the same 10% from decade to decade, which can feel like a losing game.

Data from J.P. Morgan Asset Management revealed between 1998 and 2017, the S&P 500 delivered an average annual return of 7.1%, while the average investor earned just 2.6% per year. That doesn’t seem like encouraging math, nor does it seem like people are sticking with the right strategy.

Investing can be an emotional business. When the market rallies, investors can get euphoric, throwing additional money in right as the market peaks. On the flip side, many investors get nervous and panic when the market sells off by 20% or more, dumping their stocks as the market approaches a low.

Investors who merely hold onto their positions and ride them out for the long term have a much better chance of matching or beating market averages than those who let emotions dictate their strategy.

Trying To Time the Market

Every investor has felt the queasy stomach of when the market drops, and the panic telling you to get out before it gets worse. The data says that’s almost always the wrong call. Analysts at Hartford Funds reported 76% of the stock market’s best days have occurred either during a bear market or in the first two months of a bull market. Simply put, investors who sit out the scary parts almost always miss the recovery.

The market typically undergoes a correction of 10% or more roughly every 2.5 years, while bear markets, defined by a drop of at least 20%, generally happen about every six years, according to American Century Investments. Theoretically, if you can sell your positions before these major market drops and buy back in at market lows, you could easily outperform the market. But the reality is that timing the market with precision is exceedingly hard to do.

For example, from Jan. 1, 1999, through Mar. 31, 2025, a $10,000 investment in the S&P 500 index would have grown to $71,309, according to FactSet. But missing even a few of the best market days would result in considerably lower returns.

Here’s how much you’d have if you missed the best 10, 20, and 30 best days in the market over those past 26 years:

• Missing 10 best days: $32,682

• Missing 20 best days: $19,242

• Missing 30 best days: $12,298

Trying to time the market and missing even a few of the best days will annihilate your long-term returns.

Paying Fees

One advantage the market average will always have over investors is that it isn’t susceptible to management fees. This requires investors to actually outperform the market simply to “break even.”

Even a low-cost S&P 500 index fund that charges a minuscule 0.03% management fee will significantly eat at returns over time. If you put $100,000 into such a fund and the index earns a 10% average annual return for 30 years, you’d come up about $15,000 short of the index. If you paid a 1% annual fee, which many actively managed equity funds charge, the shortfall would reach over $418,000. 

John Csiszar contributed to the reporting for this article.

This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.

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