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.
It turns out neither can predictably or consistently pick the “right” stocks. Remember there are three signs that you are gambling and speculating with your investment dollars:
- Stock picking.
- Market timing.
- Track record investing.
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 with regard to investing is counterproductive.
Many get frustrated with their adviser because they are not always making them money. Many of us expect our adviser to be moving our money from poorer performing stocks or funds to the best stocks or funds.
In talking with other advisers I have learned that some will review actively managed mutual funds. The criterion is to watch performance on a quarterly basis. If the fund manager under performs for 2 or 3 quarters they will replace the manager with the ‘current’ hot manager.
Essentially what they are doing is buying high and selling low. I wonder how their clients like this strategy.
Even worse these advisers will look at under performing asset classes and sell them and buy the ‘hot’ asset class. Another example of buying high and selling low. No wonder the financial services industry has a bad reputation.
An investor coach will build a globally diversified portfolio. Once built they will follow this prudent strategy. Most importantly will 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.
Remember you will be retired for a long time. You need an investor coach/fiduciary adviser to keep you focused and centered.
To succeed in reaching our long term financial goals we must
- Own equities and high quality short term fixed income.
- Globally diversify.
Remember sometimes rebalancing means buying poor performing asset classes and selling better performing asset classes.
In 2014 the S&P 500 was the best performing asset class by far. To succeed in investing you must be capable of selling the S&P 500 and buying the poorer performing asset classes. This of course is just an example. You must remain globally diversified.
Making changes to your portfolio based on short term volatility will result in disappointing long term performance. The difference may be a successful vs an unsuccessful retirement.