The quote I referenced recently from John Galbraith is a reminder of how much emotions play into investing. You can have a perfectly designed asset allocation strategy and the best low cost investment vehicles available, but if you don’t stick to a plan, your returns will be abysmal. Unfortunately, that happens more often than not with most investors.
The market research firm Dalbar recently did a study on the returns of retail investors and found that most investors end up jumping into ‘hot’ funds at the end of bull markets and then get burned when the market drops. Their results were actually pretty amazing. They found that over the 20-year period ending December 31, 2007, the average equity investor earned 4.48% annually, compared to the 11.81% return of the S&P 500 index. The annual return of the average equity investor was actually barely above the annual inflation rate during the same period. Fear and greed are tough habits to shake.
My own investing experiences, including a jump into internet stocks in the bubble of the 1990’s and my subsequent ride down to zero in some cases (I have a great story about selling Qualcomm and putting the proceeds into Globalstar) taught me that I was my portfolio’s own worst enemy. That realization lead me initially to look for a financial advisor and, ultimately, to start The ETF Store.
If you can stay objective and unemotional with your investments, congratulations; you are the exception. If you think you’ve sabotaged your performance or you can relate to my own experience, you might want to think about calling an advisor.
