• Products

    World Bond Fund Monthly Positioning & Outlook

    View Now >

  • Insights

    Human-Centric Investing Podcast

    Listen to Latest Episode >

  • Practice Management

    Applied Insights Team

    Learn More >

  • Resources

    Tax Center

    View Now >

  • About Us

    Human-Centric Investing

    Learn More >

The Behavior Gap

The behavior gap is the space between what people plan to do and what they actually do

Tribalism has been getting a bad rap lately.

Everyday we hear how the us-vs.-them mentality in politics is tearing us apart. That’s the dark side of tribalism. But a tribe can also help members achieve worthwhile goals that would otherwise be hard to reach. Investment advisors can leverage the upside of tribalism by creating a tribe of clients, encouraging clients to feel special about being part of group of people who are willing to do the difficult things necessary for success where others fail.


First, The Behavior Gap

If investors fail to attain their long-term goals, it’s probably not going to be for lack of data or opportunity. In an era when investors have so much access to information and investment methods, one of the biggest ways a financial advisor can add value is by helping clients close the behavior gap. The behavior gap is the space between what people plan to do and what they actually do.

Part of the human condition is the difficulty of sticking with plans and goals. Nearly a quarter of New Year’s resolutions fail within a week. Gym memberships soar in early January. Eighty percent of those new members quit within five months. Only 8% of people reach the goals they set in New Year’s resolutions.1


A Pervasive Problem With Investors

The leading reason investors underperform the market is failure to stick with a plan. In fact, financial advisor and author Carl Richards coined the term “behavior gap” to describe investor behavior in his 2012 book by the same name.

When the market or particular segments of the market are soaring, investors worry that they’re missing out, causing them to succumb to the temptation to buy high. Likewise, they panic when the market falls (or when they try to anticipate that it’s about to fall), causing them to sell low and miss out on any future recovery.

It’s not that investors don't know the hazards of trying to catch the latest hot trend, or that they shouldn’t panic when the market falls. No one goes into the market thinking they should buy at the high and sell at the low. The problem is that in the moment, when faced with the ups and downs of the market, it’s hard to resist the urge to do those things.


The Result: The Average Investor Has Underperformed the Equity Market

Over the past twenty years, the average stock investor’s returns have been 31% below the S&P 500 Index (3.88% vs. 5.62%).2 That gap in performance isn’t due to a lack of knowledge or opportunity: some of the most widely-available and lowest-cost mutual funds simply mimic the holdings of the S&P 500. The cause of the gap is behavioral. Investors don’t follow through on their goals, instead jumping on at the end of the latest bandwagon and pulling money out of the market in fear.

In the tumultuous markets of 2018, the behavior gap was especially pronounced. That year, the S&P 500 fell by 4.38% but the average equity-fund investor lost more than double that amount, 9.42%. Dalbar, the company that annually measures investor behavior, found that investors did an especially poor job timing the market, “…investors sensed danger in the markets and decreased their exposure, but not nearly enough to prevent serious losses. Unfortunately, the problem was compounded by being out of the market during the recovery months."3

Apparently, the more the market tests investors’ resolve, the more trouble they have staying the course. This is where the upside of tribalism can intervene.


Second, Facing a Hyena

Being a part of a tribe fulfills several human needs, including our need to feel like we belong to a group and that we’re distinct from other groups.  A sense of belongingness comes from membership in a group with shared beliefs and goals. Distinctiveness comes from having different (and presumably better) beliefs and goals than members of other tribes.

Although our tribal instincts get a bad rap, they wouldn’t have evolved if they didn’t serve a positive purpose. Forming tight-knit, kinship groups helped our species survive.

The Behavior Gap

The behavior gap is the space between what people plan to do and what they actually do

Picture yourself as one of our ancestors on the savanna, facing a dangerous animal like a hyena. Alone, your instinct to save yourself would cause you to flee. But if flinging yourself in front of that hyena would mean that you saved your tribe, you would do it. Protecting the tribe helps you resist that urge to flee. That’s the power of tribe.

Every Day, We See Ways That Being Part Of A Tribe Helps Us Feel Good And Accomplish Hard Things

The CrossFit tribe helps people stick to their fitness goals. The experience our children have in high school may depend on the tribe they fall into. If their tribe values studying, excelling academically, and preparing for college and adulthood, they’ll be more likely to resist the distractions of social media and the like that would otherwise thwart achieving those goals. If their tribe doesn’t view those as worthy goals, they are more likely to succumb to the distractions that will impede their long-term plans.


Third, How to Build a Tribe

As an advisor, you can provide value by identifying the hyena, uplifting clients to feel good and special about doing the hard work (and reaping the ultimate benefits) of not fleeing. By purposely using tribal language, language that activates a sense of identity as investor, an advisor can establish a sense of belonging and distinctiveness among their clients that will help them to resist the temptations that prevent most investors from achieving their goals.


Create Your Tribe Message

Tell clients that your approach is distinct from other advisors’ approaches because it requires some hard work, work that many investors aren’t willing to do. Be clear with your clients that the reason most investors fall short and underperform the market over the long term is because they aren’t willing to do the hard work in advance. They aren’t willing to acknowledge the possibility they will fail.

Advisors should warn clients that they may see other tribes get swept up in the current—the pundits, the market as a whole, even people they know. They may gorge on cryptocurrency because that’s the next paradigm-changer (or whatever becomes the next next-paradigm-changer.) They may believe they can beat the market by timing the next downturn, or get the jitters and sell in moments of personal and market weakness.

Work with your clients to establish a sense of identity around willingness to do the work of foreseeing the obstacles that can cause them to fail, especially the ways in which their own behavior might fall short. Members of your tribe may know something that others don’t:  that imagining failure can create success because it allows you to remove the obstacles in your way before you run into them, which helps to create a clearer path to your goals.  


Your Tribe of Determined, Patient Investors Can Consider Ways to Prevent Themselves From Making Rash Changes To Their Plans

Instead of feeling left out or left behind when the market or some sector rises, clients may get a boost to their self-esteem if they resist the temptation to chase hot trends. Your clients may derive a sense of distinctiveness as they see other people chasing such impulses because they know those investors may regret their decisions if the hot trend fizzles out.

At the very least, having such discussions in advance creates a stop-and-think moment between client and advisor at the most crucial time: when the hyena jumps in front of an investor, and they need reminding that long-term success depends on not fleeing, unless that’s an anticipated part of plan.


Author Headshot

Annie Duke is a World Series of Poker bracelet winner, the winner of the 2004 Tournament of Champions and the only woman to win the NBC National Poker Heads Up Championship. As a decision strategist, she merges her poker expertise with her cognitive psychology graduate work at the University of Pennsylvania. She focuses on improving decision making and critical thinking skills, and developing individual and cultural supports to overcome cognitive bias. Annie Duke is not affiliated with Hartford Funds.

Next Steps

1 Download Annie Duke's client piece
2 Get this article as a PDF
3 Listen to Annie’s podcast Episode 33 on how advisors can leverage a tribe mindset


Find out what a decision strategist/former poker pro can teach you about investor behavior >

Order Now >


1 Ashley Moor, “This is How Many People Actually Stick to their New Year’s Resolutions,” MSN Lifestyle, 12/4/18; Kyle Hoffman; “41 Gym Membership Statistics That Will Surprise You,” Infographic Journal, 3/7/19

2 Quantitative Analysis of Investor Behavior, Dalbar, 12/31/18.

3 “Average Investor blown away by market turmoil in 2018,” Dalbar, March 25, 2019.

Dalbar’s Quantitative Analysis of Investor Behavior Methodology - Dalbar’s Quantitative Analysis of Investor Behavior uses data from the Investment Company Institute (ICI), Standard & Poor’s and Barclays Index Products to compare mutual fund investor returns to an appropriate set of benchmarks. Covering the period from January 1, 1999, to December 31, 2018, the study utilizes mutual fund sales, redemptions and exchanges each month as the measure of investor behavior. These behaviors reflect the “average investor.” Based on this behavior, the analysis calculates the “average investor return” for various periods. These results are then compared to the returns of respective indices.

Average equity investor performance results are calculated using data supplied by the Investment Company Institute. Investor returns are represented by the change in total mutual fund assets after excluding sales, redemptions and exchanges. This method of calculation captures realized and unrealized capital gains, dividends, interest, trading costs, sales charges, fees, expenses and any other costs. After calculating investor returns in dollar terms, two percentages are calculated for the period examined: Total investor return rate and annualized investor return rate. Total investor return rate is determined by calculating the investor return dollars as a percentage of the net of the sales, redemptions, and exchanges for each period.

The views and opinions expressed herein are those of the author, who is not affiliated with Hartford Funds. The information contained herein should not be construed as investment advice or a recommendation of any product or service nor should it be relied upon to, replace the advice of an investor’s own professional legal, tax and financial advisors


The material on this site is for informational and educational purposes only. The material should not be considered tax or legal advice and is not to be relied on as a forecast. The material is also not a recommendation or advice regarding any particular security, strategy or product. Hartford Funds does not represent that any products or strategies discussed are appropriate for any particular investor so investors should seek their own professional advice before investing. Hartford Funds does not serve as a fiduciary. Content is current as of the publication date or date indicated, and may be superseded by subsequent market and economic conditions.

Investing involves risk, including the possible loss of principal. Investors should carefully consider a fund's investment objectives, risks, charges and expenses. This and other important information is contained in the mutual fund, ETF or closed-end interval fund prospectus or summary prospectus, which can be obtained from a financial professional and should be read carefully before investing.

Mutual funds and the closed-end interval fund are distributed by Hartford Funds Distributors, LLC (HFD), Member FINRA/SIPC. Exchange-traded products are distributed by ALPS Distributors, Inc. (ALPS). Advisory services may be provided by Hartford Funds Management Company, LLC (HFMC) or its wholly owned subsidiary, Lattice Strategies LLC (Lattice). Certain funds are sub-advised by Wellington Management Company LLP and/or Schroder Investment Management North America Inc. Schroder Investment Management North America Ltd. serves as a secondary sub-adviser to certain funds. Hartford Funds refers to Hartford Funds Management Group, Inc. and its subsidiaries, including HFD, HFMC, and Lattice, which are not affiliated with any sub-adviser or ALPS. The funds and other products referred to on this Site may be offered and sold only to persons in the United States and its territories.

© Copyright 2021 Hartford Funds Management Group, Inc. All Rights Reserved. Not FDIC Insured | No Bank Guarantee | May Lose Value