Many people ask me how they can improve their long-term investment returns. Typically, my answer surprises them, as it may surprise you. Many people can improve their investment performance by modifying their own behavior.
Let me state this another way: It is more likely that your own behavior, not the investment market, is letting you down.
Investment markets fluctuate constantly, but investors who stick with balanced portfolios over the years tend to do well.
For years, a major investment research firm has compared the average returns of stock mutual funds with the actual returns earned by investors in those same funds. The most recent results showed that the average U.S. stock fund earned 8.2% per year over the last 20 years. The average stock fund investor, however, earned about 3.2% per year.
Why is there such a gap?
Investor behavior is to blame. Investors don’t plunk their money down into an indexed U.S. stock fund and leave it alone for 20 years. Instead, they buy and sell, often at the wrong time.
So if you want to improve your long-term investment returns, resolve to change.
You may want to get realistic and admit to yourself that it is the rare investor who can go it alone. Work with an advisor who can put your hopes and fears into perspective and help you sort out the reasons for or against taking precipitous action with your investment portfolio.
For more insight, listen to Jentner Wealth Management’s weekly podcast by clicking here. Or download Jentner’s newest white papers on The Four Cornerstones of Prudent Investing and The Active Versus Passive Investing Debate.