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For the twenty years ending 12/31/2015...
The S&P 500 Index averaged 9.85% a year.
The average equity fund investor earned a market return of only 5.19%.
Why is that?
A thread.
The S&P 500 Index averaged 9.85% a year.
The average equity fund investor earned a market return of only 5.19%.
Why is that?
A thread.
Although you all have heard the infamous âBuy low, sell high,â
Investor behavior often works in reverse.
Study after study shows that when the stock market goes up, investors put more money in it.
And when it goes down, they pull money out.
Investor behavior often works in reverse.
Study after study shows that when the stock market goes up, investors put more money in it.
And when it goes down, they pull money out.
This is akin to running to the mall every time the price of something goes up.
And then returning the merchandise when it is on sale.
But you are returning it to a store that will only give you the sale price back.
Does that make any sense?
And then returning the merchandise when it is on sale.
But you are returning it to a store that will only give you the sale price back.
Does that make any sense?
The problem is the human reaction, to good news or bad news, is to overreact.
This emotional reaction causes illogical investment decisions.
When it comes to investing,
Overconfidence causes investors to exaggerate their ability to predict future events.
This emotional reaction causes illogical investment decisions.
When it comes to investing,
Overconfidence causes investors to exaggerate their ability to predict future events.
Here are four ways to overcome this behavioral issue:
1. Do nothing.
A conscious decision to do nothing is still a form of action.
If your portfolio was built around your long-term goals (as it should be), a short-term change in markets shouldn't matter.
1. Do nothing.
A conscious decision to do nothing is still a form of action.
If your portfolio was built around your long-term goals (as it should be), a short-term change in markets shouldn't matter.
2. Your money is like a bar of soap.
To quote Gene Fama Jr., a famed economist,
âYour money is like a bar of soap. The more you handle it, the less youâll have.â Â
We all have been here
To quote Gene Fama Jr., a famed economist,
âYour money is like a bar of soap. The more you handle it, the less youâll have.â Â
We all have been here
3. Never sell equities in a down market.
If your funds are allocated correctly, you should never have a need to sell equities during a down market cycle.
Would you sell your house in a down market?
Wait it out.
If your funds are allocated correctly, you should never have a need to sell equities during a down market cycle.
Would you sell your house in a down market?
Wait it out.
4. Science works.
Itâs been academically proven that a disciplined approach to investing delivers higher market returns.
Itâs boring; but it works.
If you don't have discipline, you probably shouldn't be managing your own investments.
Itâs been academically proven that a disciplined approach to investing delivers higher market returns.
Itâs boring; but it works.
If you don't have discipline, you probably shouldn't be managing your own investments.
