How to Outperform Your Neighbor's Investment Portfolio
Supreme Court Justice Scalia passed away last weekend during a hunting trip. He was know for his quick wit and unapologetic remarks. Before passing away, Justice Scalia might have called your neighbor "sandal-wearing and scruffy-bearded." Yet your neighbor claims he can outperform Wall Street all the time. How can he do that?*
Perhaps he does nothing at all. He might be among the very few who do better than the vast majority of mutual fund investors. The average stock market mutual fund has delivered something like 10% over every 20-year period in history. The average mutual fund investor has earned less than half of that. How can that be?*
Because average investors do exactly the wrong thing, at exactly the wrong time, and then do it over and over again. Average investors buy last year's hot stocks, or this year's magazine cover investments, or the last decade's top 10 funds. Had they only bought any average mutual fund, regardless of its track record or expense ratio, despite the number of stars or the rating or the press releases, they would have earned the average return and beaten the returns of almost all their neighbors.
In other words, the average investor is not only not doing as well as the stock market, she's also not doing as well as her own investments.
Imagine being the "sandal-wearing, scruffy-bearded" neighbor who stuck an investment in the sock drawer and forgot about it. Then, we woke up one day and found out we were millionaires. Do you think you can do it? It's almost impossible.
The array of investments from which we must choose is ten-thousand deep and growing. The onslaught of information from the media is persistently negative. The advice we receive is indecipherable--whether from the experts, who speak Greek, or your cubicle-mate, who has a lifestyle nothing like your own.
This is one main reason we have wealth managers and financial planners, like the folks here at AIFS. We care. We make the decisions that keep clients from underperforming not only our neighbors, but also our own investments. In fact, if AIFS helps our clients hold onto a fund that turns out to be average, we've more than doubled the annualized returns of our neighbors. Over a 20-year period, the compound gains might buy not just a new pair of sandals, but some time near a beach where we can wear them.
*Dalbar. These results are repeated year after year. Google "average mutual fund investor returns" or click here for an opinion piece.