Remember the concept of buying low and selling high?

The 10-year gap between the average mutual fund investor and the average fund increased to 2.5% by the end of 2013. The typical investor gained 4.8% annualized over the 10 years while the typical fund gained 7.3%. Yikes!

Why is the investor underperforming?

It’s not so much that investors pick bad funds, it’s that their timing in moving between asset classes tends to be terrible. There were massive inflows into intermediate-term bond funds in 2012, just before one of the worst periods in the past 40 years. And many investors sold their stocks right at the bottom of the market in 2008 and 2009. The impact of that was especially devastating. A $10,000 investment in a stock market index fund in March of 2009 would be worth more than $31,000 today. Investors tend to sell during a bear market and buy during a bull market, even though that’s contrary to buying low and selling high.

The solutions:

  1. When investing, develop an investment plan you believe in and stick to it through good times and bad. This will help avoid letting fear or greed drive your decisions.
  2. Rebalancing your portfolio at least once a year is a great way to counteract the temptation to invest emotionally. When you rebalance, you are buying low and selling high because you are selling winning investments and adding cheaper investments.
  3. Turn off the news channels! The talking heads will convince you the sky is falling one day, and then tell you the market is going through the roof the next. In order to be a successful investor you need to be able to shut out all that noise.

If this sounds like too much to tackle, a good financial advisor can help. Your advisor will determine where the gaps are in your investment strategy and assist in creating a plan that can target your specific goals. And most importantly, an advisor can help you stick to your plan and avoid the temptation to buy at the top and sell at the bottom.

Contact me today if you would like a no-cost evaluation of your financial situation.


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