Many of us hear our friends bragging about winning at the casino. But we never hear about the visits to the casino that result in losses. After you hear them brag about their winnings do you ask them to gamble for you, thinking they will repeat? Of course not, because you know it was only a matter of luck and in the long run the only ones to win are the casinos. Investing for your financial future must/should not use the strategy of looking for the hot money managers or hot asset classes expecting them to repeat.
Right now December 2014 we are experiencing another coaching event on my part. No, it is not about a down market but rather it is about an UP market. As of December 3, 2014 the S&P 500 is up over 13% year to date. WOW our portfolios should be doing great. Well not this time. We do not have all our money in the S&P500. We are globally diversified into international stocks, emerging market stocks, U.S. small cap stocks, U.S. small cap value stocks and more.
These other asset classes are not doing nearly as well as the S&P500 in some instances they are down year to date. This causes our portfolio to look like a poor performer. This is exactly what happened in the mid-nineties. Large cap growth stocks were storming ahead, huge gains, while small cap, international and emerging markets were lagging behind badly.
Everyone wanted to have all their money in large cap growth, breaking one of the three simple rules of investing, globally diversify. As many of you remember what followed was devastating to these undiversified investors. The Tech crash took large cap growth stocks down hard. And guess what asset classes flourished, small cap, international, emerging markets, etc.
The globally diversified portfolios weathered the tech crash very well. Of course, not all the years were up years but the performance was much better than the concentrated portfolio. Over the long term, your diversified portfolio will outperform any attempts to
- Stock pick.
- Market time.
- Track record invest.
Also remember that over time small stocks outperform large stocks. This outperformance comes at a cost. That cost is more volatility and therefore more negative performance.
I must mention that past performance is no guarantee of future results.
The media makes us believe that there are some money managers who can determine the best place to invest your money. Unfortunately this is not the case for most. By letting the market work for you, in the long term you will succeed. Your strategy which includes the use of structured funds are a great way to accomplish your financial goals.
To succeed long term in investing you must follow all three of the simple rules of investing
- Own equities and short term high quality fixed income.
- Globally diversify.
The same media will attempt to play on your emotions. There will be ‘experts’ telling you what to buy and what to sell. There will celebrities telling you how to invest, this one blows my mind. Taking investment advice from an actor/actress. This is another attempt by the Wall Street bullies to get you to move your money. Every time you move your money Wall Street makes money. And you lose.
Don’t allow short term performance guide your long term investment decisions.
To control your emotions during these unsettling times you need the assistance of an investor coach/fiduciary adviser to reach your long term financial goals.