As a financial advisor, I’ve come to the conclusion that an investor’s behavior is the main barrior to their own success. Investors have a hard time deciding what they really want to achieve. It’s evident when I do financial planning and we discuss goals, and they cannot clearly define any. Well…what few actually have a written plan.
By default, my two favorite goals investors set by default (you can probably tell this will be a bit sarcastic):
1. I want steady gains when the markets are going down (at least 5 or 6%)
2. I want superior returns in up markets (better than the Dow or S&P 500)
So it is no wonder they are disappointed. Some actually fire their advisors and think that the do-it-yourself route will work better. “If I do some research, this investing thing can’t be that hard”.
The way to get your expectations in line are simple. Match your investment goals with your existing portfolio. For example, if you think that long-term the stock market will rise, and you want to outperform say the Dow or the S&P 500, then having a portfolio diversified with bonds and alternative investments may just reduce your investment success.
So instead of beating yourself up for underperformance, just get comfortable with the risk. Become an all equity investor. Use discipline and a process for finding good opportunities that you can use for a lifetime. Make sure that you buy on all dips, and try to avoid selling unless it is for an obscene profit! Keep in mind when the stock market and the world go to $%&*, prices may go to bargain levels. Have the fortitude to hold tight.
Moral of the story: Have the nerve to give your poor portfolio the time to beat the markets.
Another example is when a company posts a quarter that has a negative surprise. The stock usually falls after the announcement. As a long-term investor you may view as a potential buying opportunity, or a reason to beat the rats abandoning ship, looking for higher ground. Unfortunately, in my experience many investors just don’t give their portfolios enough time to beat the markets.
Investors come to me when they just don’t know what to do, or when they are frustrated with their portfolios performance. If you would like some help, or just a second opinion, write to me at firstname.lastname@example.org, or call me at (859) 225-2596 so I can help you.