It seems like a simple question. And I think the answer is pretty simple, just make better investment choices. The trap is that making better investment choices is harder than it sounds.
The illustration above shows the difference between what the average INVESTOR receives from an investment and what an average INVESTMENT delivers. The tricky part is investor behavior.
Let me tell you a story. Once upon a time, Jane saw an advertisement on her phone for an investment fund that had returned a 10% average return over the last 10 years. If Jane had purchased that investment 10 years ago and left it alone, she would have received a 10% average per year over the 10 years.
But it turns out that Jane is human. She didn’t leave it alone for 10 years. She got distracted by a different “great investment idea.” The average investor holds a “long-term” investment for two to three years and then switches. So, the return happened, but Jane was not around to collect it.
Jane, like most humans, gets distracted by the mistaken idea that she needs to search for the BEST investment RIGHT NOW. The problem is that when most of us do that, we end up buying an investment that RECENTLY did well and selling an investment that RECENTLY did poorly. Another way to say this that that most folks buy HIGH and sell LOW.
This habit leads to the Behavior Gap shown in the illustration.
My job as a fiduciary financial planner is to help you focus on your goals and priorities and not get distracted by switching your investments all the time. I hope that when I’m successful, I help my client earn back some of the Behavior Gap that comes from hard-wired human nature.
If you are wondering how the behavior gap might be interfering with your financial goals, you might benefit from a visit with an experienced, highly-trained, CERTIFIED FINANCIAL PLANNER™ professional and Behavioral Financial Advisor.
I love to meet new people. So, follow this LINK to find a time for us to have a get-acquainted visit.
I am a financial planner who is an advocate for my clients ALL THE TIME – a fiduciary financial planner. I provide guidance based on clients’ best interests, not commissions or sales quotas. I think it’s the best way to serve clients and I am thrilled to work this way all the time.
And yes, I’m still taking on a few great families to be part of my financial planning practice.
Dunncreek Advisors does not provide legal or tax advice, nor is this article intended to do so.