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Investing Specialists

The Error-Proof Portfolio: OK, People--What Have We Learned?

The bull market is entering its fifth year, but how have investors done since the market recovered?

Investors who held on to their stock holdings during the dark days of the financial crisis have been well-rewarded. With the broad U.S. stock market up 18% on an annualized basis since October 2008, a buy-and-hold investor in a total stock market index fund would have more than doubled his money during the past five years.

Alas, we know that not every investor buys an investment and lets it ride. The market's often-volatile performance pattern tends to prompt investors to get busy buying and selling, and such activity is often exacerbated during searing psychological trials like the financial crisis. In so doing, they may undermine their own investment results. Indeed, Morningstar research has demonstrated that investor behavior--in the form of ill-timed trades--may exact a bigger toll on some investors than fund expenses, trading costs, or advisor fees.