And yet, America’s teachers have reason to feel pretty smug right now beside their financial industry peers. Sure, summer’s coming, and with it more than two months of guilt-free vacation for most teachers, or a chance to pull in some side income. But that’s not the only reason.
It turns out teachers are also beating Wall Streeters at their own game. Teachers’ investing returns outperformed those of their brokerage-house brethren in the past year, 10.2% to 6.9%, according to new data released by social investing app Openfolio. In fact, teachers saw the best returns of any profession.
The findings are based on the returns of 20,000 Openfolio investors in the 12 months ending Feb. 25. The app allows users to share and compare their investment portfolios — not in dollar terms, just percentages — privately among friends or publicly with anyone from hedge fund managers to celebrity investors such as Warren Buffett.
Users can compare their investments in terms of risk, performance, and other measures with those of other demographic groups — filtered by age or profession, for instance — to see how they stack up… and whether they could learn a thing or two from their peers.
So why did teachers and college professors have such a good year? Openfolio chalks up their performance to three important lessons we all could learn from:
1. Teachers Invest for the Long-Term
“Teachers traded just 6.1 times a year, compared to an average of 9.1,” Openfolio’s David Ma says. “Economic research has consistently shown patient investors outperform.”
Indeed, the more trades you make, the more commissions and fees you pay, and the more likely you are to mis-time the market or make emotional decisions. The best investors ignore impulse trades, do a ton of research, and then buy for the long haul.
The data set is limited to the past year, but “good investing habits are independent of market movements,” Ma says. “Teachers actually caught our eye earlier this year. When we first noticed the data on Jan. 5, the average investor was up 5.1% on the past 12 months, the average finance professional was up 4.8%, and the average teacher was up 9.6%. We kept watching teachers and noticed that this outperformance stayed consistent throughout the market volatility in early 2015.”
2. Teachers Were More Invested
If you want investment returns, it stands to reason that you have to invest, and teachers held less of their portfolio in cash compared to investors in other industries.
This strategy would obviously yield different results if the market tanked in the past year (the S&P 500 gained 15.4% over the same period). And signs that the Federal Reserve may tighten up its fiscal policies soon have rattled investors and sowed fears of a long market slowdown. However, many financial advisors nevertheless recommend that younger investors ride out market fluctuations with a slow-but-steady investment strategy.
3. Teachers Are More Diversified
Diversification — that is, investing in not just one stock, not just tech or consumer or American stocks, and not even just stocks period, but bonds and other assets — is one of the best and simplest ways to improve your returns and limit your risk at the same time.
The teachers using Openfolio had a 12% higher allocation to diversified funds — mutual funds and and exchange-traded funds with exposure to all corners of the market — than the average investor. Investing in index funds is an easy way to achieve broad diversification at a low cost.
So if you’re looking for investment guidance, maybe it’s not Wall Street traders and hedge fund gurus you need to listen to. Turns out, you can learn a lot from a teacher.