Most investors have failed by a long shot to achieve market rates of return. Based on the Dalbar research study, the average investor has failed significantly to achieve market returns. From 1984 thru 2013 the S&P 500 has earned on average11.1% per year while the average mutual fund investor has earned LESS THAN 4%.
Why are the returns for mutual fund investors so low?
- The average holding period is 3.31 years. Not quite long term.
- Track record investing – chasing the market.
- Stock picking.
- Market timing.
This is a stunning failure. Research shows the average actively managed mutual fund underperforms the market by two to three percent per year. Accepting this fact, the investor’s job of allocating assets is greatly simplified.
The investor only needs to allocate his/her assets into various asset categories to achieve market returns and remain disciplined over long periods of time.
This is easier said than done and most often requires the aid of a coach. By focusing on market returns, there is no stock picking at all. No forecast, no prediction. There is no gambling on beating the market. You just own every single stock in that asset category. That’s what we talk about when we refer to market rates of return.
You can tell you are gambling and speculating with your money if you:
- Stock pick (Active Management)
- Market Time (Active Management) Getting into and out of the equity markets, presumably at the right time.
- Track record Investing. Picking investment managers based on their past performance.
Remember it’s not about picking the “best funds” rather it’s about maintaining a disciplined approach.
Investing success requires you to:
- Own equities and high quality short term fixed income.
- Globally diversify.
Your investor coach will help you build your portfolio based YOUR time horizon and tolerance for risk. Your coach will base this strategy on academic research. Some of which has won the Nobel Prize in economics.
Many ‘advisers’ will allow their clients to market time during market extremes both up AND down. Please remember these are not investment professionals but rather investment salespeople. They will do whatever the client wants in an effort to keep their ‘business’.
When you work with an investor coach/fiduciary adviser you will be ‘coached’ to remain calm during market extremes. You will need to remain disciplined to your investment policy statement.
Remember you are an investor not a gambler/speculator. Your savings need to last your lifetime.
Stop empowering the Wall Street bullies and fire your broker/agent and hire an investor coach/fiduciary.