Why do the typical investors investment returns trail the investment returns of the investments (mutual funds, ETF’s, etc.) they are investing?
Many investors believe that by simply buying and holding a portfolio of good mutual funds, they will be able to achieve their financial goals. However, this is not how the average investor actually invests. Investors often engage in behaviors that can lead to underperforming investments. In this blog post, we will explore five of the most common behaviors that lead to underperforming investments.
- Timing the Market – One of the most common mistakes investors make is trying to time the market. This involves trying to predict when the market will go up or down and making trades accordingly. Timing the market is extremely difficult, even for professional investors, and often leads to poor investment results.
- Chasing Performance – Many investors are attracted to investments that have performed well in the recent past. However, past performance is not a guarantee of future results, and chasing performance often leads to underperforming investments.
- Focusing on Short-Term Results – Investing is a long-term strategy, but many investors focus on short-term results, such as day-to-day stock prices or quarterly reports. This can lead to impulsive investment decisions and a lack of patience, which can result in underperforming investments.
- Not Diversifying – Diversification is a key aspect of successful investing. By spreading your investments across different asset classes, industries, and geographic regions, you can reduce risk and improve the long-term performance of your portfolio. However, many investors fail to diversify, leading to underperforming investments.
- Following the Crowd – It’s easy to get caught up in the excitement of the latest investment trend or hot stock. However, following the crowd can lead to emotional investment decisions and a lack of discipline, which can result in underperforming investments.
Having a financial advisor can help you avoid these common behaviors and stick to a sound investment plan. Financial advisors can provide guidance, education, and discipline to help you stay focused on your long-term financial goals. When markets become volatile and prices go down, they can help you stay focused on your plan and avoid impulsive investment decisions.
In conclusion, avoiding the five behaviors outlined above is key to achieving successful investing outcomes. By working with a financial advisor, you can ensure that you are following a sound investment plan that is tailored to your financial goals and risk tolerance. If you do not have an advisor we would love to schedule a 15 minute call to see if we might be able to help you, use this LINK to schedule a call or contact out office at 864-293-7452.
Dave Conley, CFP