The traditional view in investing is that institutional investors represent “smart money” with their experience, resources and insights, while “mom and pop” are the “dumb money” chasing returns.

However, an analysis of Federal Reserve data about household investing patterns shows the average U.S. household performed better than a diversified hedge fund index — and did it by taking a similar level of risk as hedge funds.

We estimate that since 2003, the average household has earned more than 4.5% a year from their investments. While 4.5% annual return may sound low at first glance, especially given that the S&P 500 SPX, -1.15% returned about 9.5% over the same period, U.S. households achieved these returns by taking half the risk of S&P 500.

Furthermore, these returns exceed the returns from a diversified hedge fund index, which earned just 1.6% a year.

In our opinion, these results highlight the benefit of two key aspects of investing — saving regularly and diversification. Households continued to steadily add to their savings over the study period, and their investments were evenly spread across many different assets — such as stocks, bonds, real estate and pensions — as opposed being concentrated in a single asset, such as real estate.

Here’s more of what we found:

• Real estate hasn’t driven the repairing of household balance sheets. In the run-up to the 2008 financial crisis, real estate was one of the largest contributors to household wealth and represented about 32% of total wealth. After the financial crisis, real estate has been hovering close to the lowest historical levels at around 24% of total assets.

Initially, this may appear surprising, given the run-up in real-estate prices in most parts of the country. However, a further analysis shows most households haven’t participated in the latest boom. Bank lending standards are stricter than before, with over 60% of new mortgages going to borrowers with excellent credit scores, as compared with only 25% before the 2008 financial crisis. In addition, an increasing portion of homes are being purchased by foreign buyers and real estate partnerships.

When we combine these factors with one of the strongest bull markets since 2009, it’s why the stock market has become a bigger driver of household wealth creation than real estate.

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• Debt levels have dropped since 2008. After reaching its peak of around 25% in 2008, household debt as a percentage of total wealth has declined to around 20% of total wealth in 2017, which is around the average level since 1994

• Savings (retirement and deposits) have increased. Pension and entitlements (which include defined benefit pensions, 401(k)s, IRAs etc.) have been steadily rising and currently represent about 21% of total assets. In 2008, they were about 18%.

The charts below depict the U.S. household balance sheet over time.

While the “balance-sheet repair” is heartening, recent rosy returns might be masking two worrisome trends:

• Stock markets are playing a bigger role in household wealth. At 35% of total assets, household allocation to stocks are near historic highs. Before the dot-com bubble of 1999, stocks represented less than 30% of assets. They peaked at 38% at the height of the dot-com bubble in 1999.

In addition, household wealth is exposed to stock markets through pensions and entitlements, as 401(k)s, IRAs, and other defined-contribution retirement programs tend to have equity allocations. A household may even be indirectly exposed to the stock market in defined-benefit pension plans tied to final salaries, as the provider of pensions (the employer) might be invested in stocks.

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• Retirement savings need to increase more to meet future needs. While the aggregate savings levels might seem high in isolation, they may not be sufficient to meet future retirement needs. The Center for American Progress estimates that almost 70% of near-retirement households are at risk of falling short in retirement.

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These insights are based on our analysis of Fed data, which represents the aggregate of U.S. households, coupled with assumptions made by Qplum to derive daily data using the quarterly information provided by the Fed. Aggregate data masks the vast difference in household wealth by income levels or age or other classifications. However, by examining aggregate data we are in a position to monitor the broad directional trends that are occurring.

U.S. households aren’t day traders, nor are they return chasers. Instead, similar to skilled portfolio managers, they appear to be rational actors who alter their investment allocations in response to a change in their perception of risk — either intentionally or unintentionally.

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Gaurav Chakravorty is the chief investment officer at Qplum, an investment management company that uses artificial intelligence and data science to manage money. Amit Sinha is the founder of Focus 262 Advisors LLC and writes about the future of investing.