CHAPTER 7

MEASURING AND MANAGING RISK

        This is worse than divorce. I have lost half my money and still have a wife.

Anonymous (obviously)

OVER THE PAST 30 YEARS ending in 2013, the S&P 500 had an annual total return of 11.1%, while the average stock mutual fund investor earned only 3.69%.1 Around 1.4% of this underperformance was due to mutual fund expenses. Investors making poor timing decisions accounted for much of the remaining 6% of annual underperformance. This is a remarkable amount of underperformance. Bond fund investors also suffered substantially from poor timing decisions. Investors in passively managed index funds have also been subject to behavioral performance gaps. The Vanguard S&P 500 Index Fund had a 15-year average ...

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