Why Average Investors Earn Below Average Market Returns?

Investor behavior causes average investors to earn below-average market returns. Studies show investors tend to buy high and sell low by pouring money into mutual funds when the market rises and pulling it out when it falls. This causes their returns to be substantially less than the actual market returns of around 12% annually. Investors overreact to good and bad news due to emotional decision-making. However, taking a disciplined, long-term approach by ignoring emotions and not reacting to short-term market changes can help investors achieve higher returns over the long run.