Stay In Your Lane, Bro.
I have been known to become impatient when I drive, especially when I am running late. There’s only so much one can do when he is driving in town on streets where speed limits are low and there are fewer lanes. However, when we are on the interstate or some other multi-lane highway, there are more opportunities to make up time and distance…at least it appears that way.
Have you ever been caught up in bumper-to-bumper traffic on I-35? Upon noticing that the lane next to you is moving faster, do you change lanes only to find that everyone else is doing the same? Now the lane you are in has slowed down and the lane you were in is clipping right along. Cars you passed are now passing you. In your quest to get where you are going faster, you may actually end up arriving much later.
Investor behavior is often similar to this driving scenario. We invest in a fund or portfolio that, at the time, we are sure will get us where we want to go. But then, for various reasons beyond our control, the market slows down. We start looking around thinking surely there is a faster lane, a better way, to get us where we want to go. Perhaps a friend, a coworker, or some advertisement convinces us that we are missing out on something that is working very well right now. Perhaps the media just tries to scare us out of our current investment. With that, we jump to a new investment vehicle and find that it soon slows down as well, that everyone is now invested in it, and that there is already something else that is new and better than what you just bought. When your goal/destination is several years/miles away, you can do this several times. Your trip will be very stressful, and you will most likely be late getting there. In the case of the investment goal, you may not get there at all.
Every year since 1994, Dalbar, a mutual fund analytics firm, publishes its Quantitative Analysis of Investor Behavior (QAIB). This QAIB compares the return of the average equity fund to the earnings of the average equity fund investor over the previous 20-year period. According to Dalbar, the average equity investor earns 40% less than the average equity mutual fund. In addition, Dalbar studied the retention rate of equity mutual funds and found that the average equity mutual fund investor stays invested only 4.03 years. It is important to note that investing long term means at least 10 years, if not longer. A complete market cycle seldom takes less than 5 years.
So, our advice? With the help of your advisor, choose good long-term investment allocation strategies and stick with that plan. Your portfolio may go through periods of slow growth or even no growth. Avoid wholesale changes just because something looks better at a point in time or what you are in has slowed down. Be patient. If you get nervous and fear you are missing out on an opportunity one lane over, visit with you advisor. He or she is your navigator and will help you along the way. Stay in your lane bro; it is your best chance to get where you want to go.
*Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. No strategy assures success or protects against loss. Investing involves risk, including loss of principal.*
About the Author:
John R. Bailey is a Financial Advisor at John Bailey Financial.
You can learn more about John here: https://www.johnbaileyfinancial.com/team/john-r-bailey and contact him at john@johnbaileyfinancial.com