|
If you have been reading these pages in sequence then by now you have learned how:
taxation and inflation act to destroy wealth
long term fixed income investing is financial suicide
equity investing, though variable, leads to inflation protection and capital building.
Okay, so financial success sounds simple - just invest in a diverse pool of equities and give them time to perform.
Simple, yes. Easy - not at all. For 17 years Dalbar Inc.'s Quantitative Analysis of Investment Behavior has been measuring the effects of investor decisions to buy, sell and switch into and out of mutual funds in the United States. They use aggregate data from the Investment Company Institute that tracks money flows into and out of mutual funds, combined with monthly performance. In this way they simulate the results of the average investor, accounting for their actual decisions along the way. This data is then compared to investment market indices.
The chart below shows how poorly investors do compared to the market. Investors earned one quarter or less of the returns offered by the market. This is not because the investments were poor, but rather the behavior of the investors was poor. They attempted market timing and fund switching to increase returns but actually missed huge gains. Even those with advisors of some kind fared much worse than the market.
They could have achieved much better results by throwing darts at a list of stock funds and leaving them alone for 20 years. This is a perfect illustration of the truth in the financial advice adage "Don't do something, just stand there"! Yes, it turns out that once your strategic asset allocation based on your goals and financial resources has been done, the best way to manage your portfolio is to just stand there.
An excellent financial planner helps you invest in a diverse pool of global equities and is extremely cautious about switching them around or trying to time the markets. It is quite easy to get invested but very hard to hang on to good investments when the media is screaming "SELL!" Contact us for panic-proof advice.
|
|
