The Surprising Obstacle to Higher Investment Returns
Someone once said that good investing should be as exciting as watching paint dry. That sounds deceptively easy. It ignores the fact that humans are complex creatures and often confuse action with progress.
It’s even more insidious with investing. There are economic interests that profit when you buy and sell securities and mutual funds. That may be why much of the financial media seems to encourage discredited practices like trying to time the market.
Here are some depressing facts.
Investors tend to buy high and sell low, missing out on the returns that are theirs for the taking if they just bought and held the fund. According to Morningstar, the gap between what investors actually earned and the returns of mutual funds they owned for the 10 year periods studied was a negative 1.13%.
This may not sound like much, but a difference between earning 4% and 5% a year on an investment of $100,000, over 20 years, can cost you $46,217.
Why the gap?
Bad investor behavior.
We tend to think with our hearts, and believe we are acting rationally. When our emotions take control, it’s tempting to panic when the market tanks. We look at the declining value of our portfolios and believe we have to “get out” to stop the bleeding.
That’s where a competent financial advisor can make a difference.
At the Danielson Group, we take the emotion out of investing, by providing a consistent and objective perspective.
Our job is to eliminate the gap.