Behavioral Investment Consulting
Behavior Matters
The key determinant of long-term real-life returns is your behavior as an investor. It is not investment selection and it is not market timing. The key is your behavior.
It is similar to a diet or an exercise plan. Just like there are a ton of ways to lose weight and build muscle, there are just as many ways to build a solid portfolio. The issue is not the diet plan or the investment model (many trainers and advisors can provide you with a great one), the key determinant is if you are following that plan.
The average fund investor not only underperforms the markets as a whole - most of them are underperforming the funds that they own. They do this because they continue to fall into the common behavioral mistakes that kill portfolio returns.
A great advisor, like a great trainer, will be there at every point to help you implement the key behavioral traits you need to succeed.
Patience
Discipline
Faith in the Future
We live in a timing and selection culture - timing - when to be in and out of the markets and when to move between sectors - and selection which stocks or mutual funds to buy are critical variable. the industry - the financial press and the mutual fund companies have come t realize that it is in their best interested to promote the live that timing and selection matter.
Think of morning stars whole business - and the mutual funds cmapnies all advertise around eh funds and their 5 start ratings.
there is a long-term nature to the voyage.
the results that real people really get are marginally effective by the relative performance of investments. They are absolutely driven by beharior
The reason why investors underperform in their portfolios is because they behaved inapprotpriatley.
Blog - behaving inapparopriateley
have you ever bought a stock or a mutual fund that were the top performers from last year or the last 3 years as reported by Barrons magazine.
when those funds underperformed - you switched to the newest hot funds.
in market downturns and pullbacks in 1987, 2002, 2008 - did you buy more of the funds you were in after they went on a 30% sale - or di you ever capitulates to stop the bleeding until marekst felt safer.
central problem is emotional and behavioral.
Blog - (show S&P 500 10 year returns and 20 year returns from DFA). ask if the reader would be happy with those compounded returns over the last 10 years - if he could have just put his investment in an envelope and not look at ti for 10 years - or 2o years. - they would have done stellar.
They do this by fund investor consistently manages to capture less than the average fund returns. (Lipper and DALBAR Study).nvestor who does not focus their investing behavior will When these are mixed with the key invesmtn
Investors spend so much time deciding and worrying about which large cap mutual fund they should be in. If company X’s fund is outperforming the one they own and whether they should move assets over to it.
between one large cap mutual fund vs another. But they don’t get that how importnat over the long term your behaviorReal life returns are the How you behave when markets drop 30%, when the financial press is so bad that it feels like the econmy is never going to recover, when you are chasing hot stocks in the news, is what determines “real-life returns.”
Real-life returns are not the returns an index company displays on their marketing materials. Most investors don’t capture those stated returns. Real-life returns are the returns the average investor actually captures diring the year in their portfolio after making all the behavioral mistakes we are prone to make. Most investors don’t own that fund the whole year. We are marketing timeing when to get in and own of it. We are leaving that fund for another fund that had a better quarter or yearly performance than the one we held. Most investors never actaully get the return that mutual funds are producing for us.
% of your portfolio is in 3 stocks,bad news is all over the press, when hot investor over the long term It is not what funds you chose, what percent of your assets you choose to allocate to them or when you into each one of those funds.
“It won’t be the economy that will do in investors; it will be investors themesleves".”
-Warren Buffet
. The ones that you are actually going. toge We do not believe that we can consistently recommend investments that will “outperform” your neighbors. There will be some years that we do, but I can not promise it (nor should any other advisor) and it is not what we do.
Our goal is that by following our planning and behavioral advice that over your lifetime you will end up with far better lifetime returns than your neighbor.
There is a difference between the returns of a particular mutual fund and the real return that an investor may have had owning that fund. See et of investments