When dealing with investors I have heard a number of questions. The most frequently asked is; what will the market do next? Every one of them believes someone knows what will happen next.
Investors are in constant search of the ‘expert’ that will give them the answers and ‘beat’ the market. Unfortunately, there are no answers to the question; what will happen next? While investors are searching for the right answer they lose money unnecessarily.
This is evidenced by the Dalbar research study which looks at individual investor performance over a 30 year period. The latest study revealed that the 30 years ending December 31, 2013 average annual performance S&P500 earned 11.10% while the individual investor earned 3.69%.
Why the difference? It can partially be explained by the investors search for the ‘best’ manager. This is called track record investing and it doesn’t work.
The invisible hand of the market sets prices more efficiently than any other process known to man. Is it perfect? Indeed, No. There is no perfect price; only what a willing buyer and seller negotiate. The market instantly incorporates the collective mind of every market participant. Markets work. Unfortunately, most investors never tap their real power.
Stop trying to beat the market and let the market forces work for you. This will be accomplished by owning equities….globally diversify….rebalance. These 3 simple rules will lead to a successful investing experience.
Although these are simple investors have a difficult following them on their own. Remember through it all we are humans and we have emotions. We watch the financial news casts and hear what will happen next in the markets. In most cases these news casts are designed to either instill fear and panic leading to investors selling their holdings or hype a ‘hot’ stock/asset class/manager and buy near the peak.
These Wall Street bullies want you moving your money constantly, not for your benefit but rather to generate fees for the bullies.
As with most endeavors whether it be sports, career or personal life we need a good coach to guide us. Someone to help us determine our goal(s), develop a prudent plan and remain disciplined. Ensuring discipline is where a good coach adds most of their value. I like the saying ‘if you think professional advice is expensive wait until you find out how much free advice costs you’.
Don’t empower the Wall Street bullies, fire your broker/agent and hire an investor coach/fiduciary adviser.