{"concept":{"id":34,"slug":"investor-return-gap","term":"Investor return gap","shortDefinition":"The difference between the return a market offers over a period and the return the average investor in that market actually achieves.","longDefinition":"The investor return gap is the difference between the return a market -- or a fund/ETF that tracks it -- offers over a period, and the return the average investor in that same market actually achieves. It isn't caused by the market performing differently for each investor, but by the investor's own buying and selling behavior: buying once prices have already risen a lot and selling once they've already fallen a lot, driven by the emotion of the moment rather than a prior plan. Cognitive biases -- in particular loss aversion and confirmation bias -- are, to a large extent, the cause of this behavior."},"relations":{"requirement":[],"contrast":[],"related":[{"concept":{"id":31,"slug":"cognitive-bias","term":"Cognitive bias","shortDefinition":"A systematic pattern of thinking that deviates from objective or rational judgment -- it also affects experienced investors, not only beginners.","longDefinition":"A cognitive bias is a systematic pattern of thinking that deviates from objective or rational judgment. It isn't a one-off mistake or a matter of intelligence -- it's a predictable tendency that affects most people, including experienced and professional investors. Recognizing your own biases doesn't eliminate them automatically, but it's the necessary first step toward counteracting them with a more structured decision-making process."}},{"concept":{"id":35,"slug":"investment-plan","term":"Investment plan","shortDefinition":"A set of criteria and rules defined in advance -- before the market moves and emotions get involved -- that guide decisions to buy, hold, or sell.","longDefinition":"An investment plan is a set of criteria and rules defined in advance -- before the market moves and emotions get involved -- that guide decisions to buy, hold, or sell. At a minimum, it defines what to buy and why, how long the investment is meant to be held, and under what specific conditions it would be sold. Its main function is to counteract the cognitive biases and behavior that cause the investor return gap: it gives an objective reference point to return to when the market moves sharply, instead of improvising a decision under emotional pressure. It doesn't eliminate market risk or guarantee a result, but it does reduce the odds that one impulsive decision derails an otherwise reasonable strategy."}}],"calculatedBy":[]},"curricularPosition":[{"id":27,"moduleId":9,"slug":"why-the-average-investor-underperforms-the-market","title":"Why does the average investor underperform the market?","summary":"You understand why the average investor, in practice, gets a lower return than the market they're investing in.","bodyMarkdown":"## Objectives\n\nBy the end of this lesson you understand why the average investor, in practice, gets a lower return than the market they're investing in.\n\n## Content\n\nThere's a well-documented difference between the return a market offers -- or a fund or ETF that tracks it -- over a period, and the return the average investor in that same market actually gets. This difference is known as the investor return gap.\n\nThis gap isn't because the market performs differently for each investor -- the index or fund has a single return for that period -- but because of the investor's own behavior: buying and selling at the wrong times, almost always driven by the emotion of the moment rather than a prior plan.\n\nA common pattern: buying more once prices have already risen a lot, out of euphoria or fear of missing out, and selling once prices have already fallen a lot, out of panic -- instead of sticking to a consistent strategy throughout the period. That behavior systematically reduces the actual return obtained compared to what simply holding the investment without intervening would have delivered.\n\nThe cognitive biases already covered in the previous lesson are, to a large extent, the cause of this behavior: loss aversion pushes people to sell at the worst possible moment, and confirmation bias reinforces decisions already made without questioning them in time.\n\n## Example\n\nAn investor who sells their position after a sharp market drop, out of fear of losing more, and only invests again once the market has already largely recovered, gets a real return much lower than they would have gotten by simply holding the investment through the entire drop and recovery.\n\n## Common mistakes\n\n- Thinking the investor return gap happens because the market \"treats some investors worse than others\" -- it's caused by the investor's own buying/selling behavior, not a real difference in what the market offers.\n- Believing this gap only affects poorly informed investors -- emotional behavior can affect any investor, informed or not, if they don't follow a structured decision-making process.\n\n## Summary\n\nThe investor return gap is the difference between what a market delivers and what the average investor actually gets, caused by buying and selling driven by the emotion of the moment instead of a prior plan.\n\n## Self-check\n\nWhy isn't the investor return gap caused by the market performing differently for each person?\n\nWhat relationship does loss aversion, covered in the previous lesson, have with this return gap?","bodyHtml":"<h2>Objectives</h2>\n<p>By the end of this lesson you understand why the average investor, in practice, gets a lower return than the market they're investing in.</p>\n<h2>Content</h2>\n<p>There's a well-documented difference between the return a market offers -- or a fund or ETF that tracks it -- over a period, and the return the average investor in that same market actually gets. This difference is known as the investor return gap.</p>\n<p>This gap isn't because the market performs differently for each investor -- the index or fund has a single return for that period -- but because of the investor's own behavior: buying and selling at the wrong times, almost always driven by the emotion of the moment rather than a prior plan.</p>\n<p>A common pattern: buying more once prices have already risen a lot, out of euphoria or fear of missing out, and selling once prices have already fallen a lot, out of panic -- instead of sticking to a consistent strategy throughout the period. That behavior systematically reduces the actual return obtained compared to what simply holding the investment without intervening would have delivered.</p>\n<p>The cognitive biases already covered in the previous lesson are, to a large extent, the cause of this behavior: loss aversion pushes people to sell at the worst possible moment, and confirmation bias reinforces decisions already made without questioning them in time.</p>\n<h2>Example</h2>\n<p>An investor who sells their position after a sharp market drop, out of fear of losing more, and only invests again once the market has already largely recovered, gets a real return much lower than they would have gotten by simply holding the investment through the entire drop and recovery.</p>\n<h2>Common mistakes</h2>\n<ul><li>Thinking the investor return gap happens because the market &quot;treats some investors worse than others&quot; -- it's caused by the investor's own buying/selling behavior, not a real difference in what the market offers.</li><li>Believing this gap only affects poorly informed investors -- emotional behavior can affect any investor, informed or not, if they don't follow a structured decision-making process.</li></ul>\n<h2>Summary</h2>\n<p>The investor return gap is the difference between what a market delivers and what the average investor actually gets, caused by buying and selling driven by the emotion of the moment instead of a prior plan.</p>\n<h2>Self-check</h2>\n<p>Why isn't the investor return gap caused by the market performing differently for each person?</p>\n<p>What relationship does loss aversion, covered in the previous lesson, have with this return gap?</p>","sortOrder":2,"readingMinutes":6,"difficulty":"Básico","url":"/en/academy/fundamentals/investor-psychology/why-the-average-investor-underperforms-the-market"}],"graphSummary":{"root":{"type":"concept","id":"34","depthFromRoot":0,"entity":{"type":"concept","slug":"brecha-de-rentabilidad-del-inversor","term":"Brecha de rentabilidad del inversor","excerpt":"Diferencia entre la rentabilidad que ofrece un mercado durante un periodo y la que realmente obtiene el inversor medio que invierte en él."}},"depth":1,"returnedNodes":1,"truncated":false,"hasCycle":false,"nodes":[{"type":"concept","id":"34","depthFromRoot":0,"entity":{"type":"concept","slug":"brecha-de-rentabilidad-del-inversor","term":"Brecha de rentabilidad del inversor","excerpt":"Diferencia entre la rentabilidad que ofrece un mercado durante un periodo y la que realmente obtiene el inversor medio que invierte en él."}}],"edges":[]},"relatedNews":[],"relatedEntities":[]}