The average investor (red bar in the above graph) barely made over 2% per year from 1993-2013. That’s really just awful.  They would have been better off just putting their money into an extremely safe investment like 5 year treasuries.  They wouldn’t have had to worry about losing any money and they would have doubled their actual return.

When the S&P 500 increases a little over 9% per year and the average investor is only making a little over 2% per year, the average investor is obviously doing something wrong.

I believe the two root causes are:

1. Wanting/Needing to make as much money as possible as quickly as possible; and
2. Human emotions and thinking errors.

Both of these combine into a super storm of terrible investments over and over again.  The average investor worries they’ll miss out on the next big thing so they buy at the worst times.  The average investor worries they’ll lose all of their money when the stock market starts dropping so they sell at the worst times.