invest

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 20 year period. The latest study revealed that the 20 years ending December 31, 2010 average annual performance S&P500 earned 8.20% while the individual investor earned 4.34%.

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 participants. 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.

Why Investors Lag the Market (money.usnews.com)
The True Enemy of Every Investor. (401kplanadvisors.com)
Diverisification Is Your Buddy (401kplanadvisors.com)

Successful investing is not, per se, a portfolio problem, but rather a people problem. No matter how well designed and engineered a portfolio is, it can easily be destroyed by imprudent investor behavior.

Unfortunately, the true enemy of every investor lies within.

The instincts, emotions, and even biochemical makeup of human beings drives them to gamble and speculate with their money, even when they don’t mean to. This problem is multiplied exponentially by financial institutions that profit from this self-destructive cycle. You will see that this cycle is hard wired into every human being in the world. No one is exempt.

After studying the collective behavior of thousands of real world investors over the past decade, several truths have made themselves clear. It is my belief that many, if not most financial product sponsors are aware of this dilemma,

but either don’t care that the investor is harmed by it,

or are ignorant of the damage that they unknowingly perpetrate on the American investor.

To succeed in investing you must own equities……globally diversify….rebalance.