Nobody wants to settle for "average". We all like to believe we are above average in most things we do. Studies of activities ranging from driving ability to professional performance have shown that we are over confident in our own abilities. This isn't always a bad thing but it can be harmful if we aren't cognizant of it, especially when it comes to investing. Many people don't like the thought of investing in a diversified portfolio of low cost index funds because that means they are doomed to "average" returns. What they don't realize is that earning these "average" returns actually means they will be well above average compared to most investors! Here's why:
This chart shows the 20 year annualized returns of various asset classes and diversified portfolios compared to the "average investor". You are probably wondering how it could be possible that the "average investor" has returns that are so much lower than all these other asset classes? The answer is actually quite simple - poor behavior. The average investor chases after the best performing funds and asset classes, selling out of the funds that have done poorly and buying ones that have done well. We all know you don't want to buy high and sell low but that's exactly what most people do, even if they don't realize it.
So instead of stressing so much about what investments you own and whether they will beat the index, maybe you should sit back and worry more about just beating the average investor. To do that you simply need to pick an investing strategy and stick with it. As much as you think you might be able to do that on your own, we know how hard it can be to stick with something when you are watching your hard earned dollars disappear when the markets turn. We've seen what "the average investor" does when times get tough and that's exactly what we are here to prevent.
Our number one job is not investment selection or optimizing portfolios. Surely that's important and we work hard at that, but our real priority is behavior management. Our goal is to make sure YOU beat the AVERAGE INVESTOR, not the market. Over the years we have helped our clients do better the average investor. We help you develop a plan for your financial future. That way you will be ready for whatever comes your way and you won't make poor decisions. If you want to find out how we can help you, book an introductory call with me now.
The views expressed represent the opinions of L.K. Benson & Company and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person. Please see Additional Disclosures more information.