Each week I try to put a different spin on the same problem. Investor/people behavior during times of crisis as well as the good times.
Over the years I have learned that everyone if unique when dealing with adversity. The most efficient way is to have a prudent process and remain disciplined to it.
Recently I met with an investor and he said money should only go into large U.S. stocks. International, small and value stocks should be avoided because of poor performance. This is a great example of market timing. Market timing has been proven to result in poor outcomes over the long term.
That said, 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.
In recent conversations with investors these tendencies to gamble and speculate are becoming evident. It sounds something like ‘if this asset class is doing well and this one is not why not transfer all of our money into the better performing asset class?’ This is a classic case of market timing. Getting into and out of the market/asset class at the right time.
We are emotional beings and when our friends/relatives tell us how they are making ‘tons’ of money investing a certain way. We become envious and wonder why we can’t get a ‘piece of the action’?
Just because the ‘hot’ asset class is doing well does not mean this trend will continue. It may for a while but eventually the ‘hot’ trend will end. Leaving the investor with a sick feeling and even more skeptical of the markets.
The markets are not the problem you are. This is where an investor coach/fiduciary adviser can help. Your fiduciary adviser will help you build a prudent, globally diversified portfolio with the right amount of equities and fixed income for you. Most importantly your coach will keep you disciplined when your emotions tell you to invest the ‘hot’ way.
To succeed in investing for the long term you must
- Own equities and high quality short term fixed income.
- Globally diversify