Yes, you can, sort of. Good, basic investing isn’t rocket science. But even so, many people don’t do it as well on their own.
To cite some evidence, since 2005, Morningstar has been publishing its annual “Mind the Gap” study, essentially estimating how badly DIY investors tend to hurt their own cause by making ill-timed investment decisions.
In 2018, Morningstar reported (emphasis ours): “The average dollar invested in [U.S.] open-end funds gained 5.5 percent per year over the 10 years ended March 31, 2018, while the average fund returned 5.8 percent.”
That’s wonderful news. DIY investors seemed to be remaining more disciplined, thus more successful at earning the actual returns available from the funds they’d selected.
But taking a closer look at the evidence, there is more to understand. First, the improved discipline mostly showed up in diversified U.S. stock funds and balanced funds (such as target-date funds). Investor discipline didn’t fare as well elsewhere, such as in international stock, muni bond, and alternative funds. Second, the 10-year period largely represented a very fair-weather market. Naturally, it’s easier to stay the course when it’s already smooth sailing.
Time will tell how “the gap” fares during the next bear market. In the absence of informed planning and disciplined long-term strategy, our natural tendencies are to react to emotions rather than adhere to strategy. Among our greatest advisor roles is to ensure that you stick to your well-built plan, over time and across volatile markets – especially if you are unable to remain “steady as she goes” on your own.
But let’s say you have what it takes to stay the course. 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.