Investors are making basic mistakes, and they need your help.
Buying low and selling high is much easier said than done. Despite the explosion of data and the ability to look up almost anything instantly, human nature still dictates our decision-making.
As stocks reach new highs, are investors on the cusp of a bout of uninformed buying? Based on the track record, its highly likely. Investors are inexplicably adept at buying high and selling low. Many, late to the party, are left holding the bag.
While the markets rally and hit dazzling heights, many investors returns are actually much smaller. Indeed, research firm Dalbar recently conducted a study that shows the average equity mutual fund investor captured a return of 5.5% last year. During the same time, the S&P 500 generated a return of 13.6%. Investors fared no better with bonds. The broad bond market, as measured by Barclays Aggregate Bond Index, posted a 5.97% return, while the average fixed-income mutual fund investor lagged with 1.16%. How do these discrepancies happen? Untimely buying and selling.
But those discrepancies have a major silver lining for advisors: If investors are notching gains of just 5% while the market is returning 13%, that 800 basis point difference is your chance to add value. Just by matching the market, you can prove your worth to even the hardest clients.
The challenge, of course, is that you have to overcome the same human tendencies that your clients succumb to: Stick to the original portfolio plan instead of selling at every downturn, dont chase performance and dont necessarily follow the herd.
If you can do that, you just may turn that same old song into a classic.
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