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Yes, you can, sort of. Good, basic investing isn’t rocket science. But even so, most people don’t do it nearly as well on their own.
To cite the hard evidence, since 1994, financial market research firm DALBAR has released an annual update on its Qualitative Analysis of Investor Behavior (QAIB), indicating that investors significantly underperform the very investments they hold. According to the most recent QAIB, covering 20 years of data through 2010, investors earned just under 4 percent compared to S&P 500 returns of just over 9 percent. That’s a lot of wealth left on the table.
DALBAR and many other studies demonstrate that investors’ inability to capture available returns is a self-inflicted wound that results from over-active trading. In the absence of careful planning and disciplined, long-term strategy, our natural tendencies are to react to emotions rather than adhere to strategy, which results in buying and selling at the wrong times, for the wrong reasons. Among our greatest advisor roles is to ensure that you stick to your well-built plan over time and across volatile mar kets. This may sound like no big deal. But the evidence is clear that individual investors lack the resolve to go it alone.
But let’s say you have what it takes to stay the course with basic investing. There are still numerous ways we can add substantial value. To name a few, we can:
- Assess your existing investments and let you know of any concerns, such as hidden costs or inefficient activities. Suggest and explain appropriate, more cost-effective alternatives.
- Refine how and where your assets are allocated to create a risk/reward profile that makes sense for you. Maintain or update your allocations as the market and your goals evolve.
- Intelligently divide your investments between your taxable and tax-sheltered accounts, to minimize the damaging impact of taxes across your portfolio.
- Provide access to Dimensional Fund Advisor funds, which we believe represent a step up from basic index investing, and are only available via the guidance of an investment advisor.
- Coordinate your investment activities within the context of your overall wealth management needs, including insurance, estate planning, charitable intents and other related concerns.
- Provide ongoing counsel and education as new opportunities or new challenges arise.
In short, most investors aren’t investing for fun; they’re investing for their life. In that context, wise fund selection is merely part of a much greater whole that warrants objective, advisory oversight. It warrants Rockbridge Investment Management.
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