STOP tampering with your portfolio
If a financial planner could just accomplish one thing for clients, it is to help them capture more of the returns that their own investments offer. Achieving this adds huge value, thus they have done something extremely worthy and valuable. Like most things in life this requires a bit of work and attention to detail. However it’s easier to promise a client that they’ll be able to avoid drawdowns than it is to convince a client why they must learn to tolerate them. Every investor yearns to be able to say that they timed the market to perfection.
Every picture tells a story and this one from Dalbar, a financial-research firm in Boston found that equity-fund investors earned just 3.7% annually over the past 30 years through 2015 compared with a 10.4% annual return for the S&P 500.....and my guess is the figures for Aussie's on the ASX would not differ markedly.
Unfortunately investors systematically under-perform their own investments by acting emotionally, over-trading and making poor timing decisions.
It is the usually feeble attempt to avoid volatility that detracts from long-term returns, which of course is counter-intuitive. Volatility is not the enemy because it causes fluctuation – rather, it is the enemy because it drives bad decisions.
There might always be a gap between the performance available and the performance an individual receives, owing to things like taxes, fees, trading costs and unavoidable cash emergencies that arise from time to time. However the the goal is to minimise these detractors from long-term returns and ultimately achieve one's investing goals.