We talk a lot about the importance of education because we believe that educated investors are disciplined. In our experience, discipline builds confidence —and confident investors have a better experience. But we also know that we can go months, even years, without a real test of confidence. A test like we are facing now.

The coronavirus pandemic has shaken nearly every aspect of life and sent the markets into wild swings of despair and euphoria depending on the day’s headlines. With this much uncertainty and this level of market volatility, investors must be especially vigilant against falling into the Behavior Gap.

The Behavior Gap is the name coined by author and podcast guest, Carl Richards, to describe the fact that most investors earn less than the market’s returns, simply because they make poor decisions. Chasing hot stocks when the markets are booming or panicking and moving your money into cash—this is the kind of behavior that creates the gap. And it’s a real, quantifiable number.

For 25 years, the research firm DALBAR has been publishing its analysis of the difference between the average investment return, and the average investor return—and it looks bad for the average investor (though some journalists discount the findings and methodology).

For example, stocks have delivered an average annual return of roughly 9% over the last 30 years, while bonds have delivered an average annual return of 6%. If we imagine a 50/50 balanced stock and bond portfolio, that means the investment markets have delivered a 7.5% average annual return over the past 30 years. The average investor, though? They’ve only achieved a 4% average annual return. That difference of 3.5 percentage points per year for the last 30 years adds up to a huge number.

Say you had $1 million in your retirement account. A 4% annual return for 30 years would result in a balance of about $3 million. But if you’d gotten the market’s combined 7.5% investment return, you’d have almost $9 million after 30 years. The Behavior Gap in your savings, then, is missing out on $6 million—all because you let emotions into your investment decisions.

Right now, the risk of succumbing to emotion is especially high. A friend of mine, who is  a successful businessman, recently sent me a note saying he was day-trading while sitting at home in quarantine. He’s buying stock in Zoom and pharmaceutical companies, thinking he can predict what’s going to happen and pick up a few wins. He’s a smart guy who really understands commercial real estate, yet here he is making classic investment mistakes. He’s in the Behavior Gap.

I urged him stop gambling with his money and consider allocating it into 13,000 stocks spread all over the world, like we do. Then I encouraged him to get off the couch and find some other way to pass his time. Because the pernicious thing about the Behavior Gap is that it doesn’t just cost us money. It can have the same draining effect on our happiness as it does on our investment accounts.

As Carl Richards told Matt in his recent podcast interview, he now applies the Behavior Gap concept to any activity that we engage in hoping to improve our situation, but which in fact produces a suboptimal result. Just as making ill-timed, emotional investment decisions hurts our long-term returns, spending emotional energy on things that aren’t useful produces a lot of unnecessary pain, suffering and anxiety.

That’s why we also emphasize to clients the importance of focusing on the things that bring real meaning to their lives. In fact, a framed print of one of Carl Richards’ famous sketches hangs on the wall of Matt’s office, reminding us that our job is to help people stay focused on the small overlap between things that matter and things they can control.

So even as we face ongoing uncertainty about what the post-coronavirus world will look like, remember to focus on what matters, and what you can control. That includes having faith in the evidence that this market downturn, like others, will end. Stocks will recover and disciplined investors will be rewarded. In the meantime, we will be taking care of what we can control, like rebalancing your portfolio and harvesting losses.

Keeping the faith, staying disciplined—that’s exactly what makes our clients different from the “average” investor. And it’s how we help you avoid falling into the Behavior Gap.

Financial simplicity, like many goals, is as desirable as it is elusive.  

Or so it seems. 

If you took a sample of 100 investors and asked each one about the vital signs of their portfolios – their fees, returns, and allocations – you’d be hard-pressed to find many who could speak confidently and accurately about them.

This isn’t just a guess from left field. In 2016, MarketWatch cited a Prudential Investments retirement preparedness survey that  found more than 40% of Americans had no idea how their investments are allocated. We’ve seen similar stats from other surveys published since then. 

What’s most disappointing about this apparent collective bewilderment, is that the system seems designed to be this way. We work in an industry where thousands of “advisors” are not only encouraged to sow seeds of confusion, they’ve made millions of dollars doing so. 

When a broker pulls an investor out of their comfort zone and into the weeds, the investor becomes vulnerable. Accordingly, advice becomes a sales pitch, and costs become confusing –  a pattern we see time and again. 

We know investors deserve better, so we’re on a mission to make the complex simple, to make financial conversations comfortable, and ultimately to shed a liberating light into the dark corners where families have been harboring their greatest financial fears for years. 

As our friend Carl Richards has embodied in his Behavior Gap sketch above, an advisor’s job isn’t to prove how much they know. It’s about helping investors see the few, elegant, simple changes they can make to their plan, to make a huge impact over the long-term.  

There’s nothing more rewarding for us at Hill Investment Group than seeing someone’s reaction when the air finally clears for them, and they realize that simplicity wasn’t as elusive as they once thought. 

In the words of pianist and composer Frédéric Chopin, “Simplicity is the final achievement.” 

Even in the normally staid world of fiduciary investment advice, we have our stars – heroes who inspire us with the brave choices they make to better the lives of investors.

Vanguard founder John C. “Jack” Bogle, who passed away on January 16th at age 89, was among the brightest (and most stubborn) stars of them all. The world lost a giant that day, as evidenced by the instant outpouring of respects paid from around the world.

Bogle refuted the status quo and gave birth to the retail version of index investing in the 1970s. He was energized by the crusade until his dying day.  In the video homage below, The Wall Street Journal columnist Jason Zweig observed, “[Bogle’s career] spanned over six decades of change and growth in the industry that he helped to transform.”

To pick a sample from the deluge of sentiments expressed in the media, we especially appreciated a New York Times piece by Ron Lieber and Tara Siegel Bernard, “The Things John Bogle Taught Us: Humility, Ethics and Simplicity.” Many of our other favorite financial voices of reason are represented here, including Behavior Gap’s Carl Richards, and Manisha Thakor, herself a worthy crusader for women and wealth.

We’d say RIP, but Jack Bogle didn’t want people to rest. He roots for us to fight for what’s right, even when it isn’t popular. He was a relentless agitator for good, and his spirit inspires us to keep pushing for better solutions for investors. Every single day.