Brokerage firms create the illusion of “control” by encouraging investors to generate activity – frequent buying and selling. Remember the TV commercials with the talking baby who trades stocks? This brokerage firm is giving the illusion that even a baby can follow simple rules to successful stock picking.
The illusion is that you can pick your own stocks better than professional money managers.
There is a new commercial stating if you want real gains in your portfolio you must make the picks yourself. This Wall Street bully is giving the illusion that you can pick the winners with their help. In the end the only wealth will be created for the firm and not you.
It turns out neither can predictably or consistently pick the “right” stocks. In a similar fashion, gamblers feel more in control of the outcome when they actively pull the arm of a slot machine. Activity is not control. Buying and selling often feels “good” and proactive. In reality, most activity is counterproductive.
Many of us get frustrated with their advisor because they are not always making them money. Many of us expect our advisor to be moving our money from poorer performing stocks or funds to the best stocks or funds.
When the market is in a downturn, like we are experiencing right now, investors want their advisers to do ‘something’. We need to control our emotions during downturns.
Remember, crashes of the past are seen as buying opportunities while current and future crashes are seen as risk. When experiencing a ‘crash’ keep your focus on the long term and ignore short term volatility.
The best advisors follow a prudent strategy and keep their clients and themselves from making an emotional change to their portfolio when the economy or whatever is going against them.
A prudent process and discipline to that process will guide you to a successful outcome in the long term.
To succeed in reaching our long term financial goals we must own equities…globally diversify….rebalance. Remember sometimes rebalancing means buying poor performing asset classes and selling better performing asset classes.