Benjamin Graham once said “Individuals who cannot master their emotions are ill-suited to profit from the investment process.” That’ a bit harsh given the events of 2008 and although emotions matter, a trusted advisor can help you avoid the “investor behavior penalty” discussed below.
“A study by Dalbar underscores the importance of controlling emotions and avoiding self-destructive investor behavior. From 1993-2012, the average stock investment returned 8.6% annually while the average stock investor earned 4.3%.
We call the gap between results the investor behavior penalty.”
Source: Quantitative Analysis of Investor Behavior by Dalbar, Inc. (March 2013)
Things to Avoid
Having an advisor you trust should help you avoid:
1) “Pouring money into the latest top-performing manager or asset class, expecting the winning streak to continue
2) Avoiding areas of the market that have performed poorly, assuming recovery will never occur
3) Abandoning investment plan by attempting to successfully time moves in and out of the market, a near impossible feat
Successful investors throughout history have understood that building long-term wealth requires the ability to control emotions and avoid self-destructive investor behavior.” ~Davis Advisors
Your emotions matter and the most important service your advisor can provide is to help keep them in check by offering a good ear, perspective and time.
Until next week,
Susan R. Linkous
The above material is opinion and not intended as specific investment advice. Past performance is no guarantee of future results. Please seek advice before investing.