In the past we all have seen the commercials during sporting events, as well as other highly viewed shows the baby that picks his own investments.
Obviously, these commercials are trying to convey the idea that you can trade your own account and make money for a low trading fee. Even a baby can do it.
These commercials play on your emotions. These brokerage firms know that most people will trade excessively, making the brokerage firm more money. At the same time the investor will lose. Of course there are examples of some making huge profits. These examples are few and far between.
As an example there are people who win the lottery but for most it is a losing proposition.
Wire houses and discount on-line brokerage firms WANT you to believe you can manage your own money. That keeps you speculating and makes them RICH. Even the most intelligent investor with the best intentions and lots of time is likely to ultimately fail because of emotions, instincts, and propaganda.
These brokerage firms make money on every trade regardless of whether you the investor make money. In fact most lose. If you are investing for a specific long term goal you need to know two numbers. You need to know the expected return and the expected volatility (risk) of your portfolio. If you do not know these two numbers you are speculating with your money.
Just recently these brokerage firms have offered free trading. What used to cost $4.95 or $7.95 or whatever, now costs nothing. Investors should be asking ‘How do the brokerage firms make money now?’
The most important component of successful investing is controlling your emotions and most people cannot do this on their own. This is where a good advisor adds value, developing a prudent portfolio for your situation and keeping you disciplined to that strategy.
Remember there will be times when others have a better solution for the short term. Jumping from one strategy to another does not work.
To succeed in investing for the long term you must own equities….globally diversify…….rebalance.
