William Frisby
5 reasons your investments are underperforming
ONE
A lack of strategy
Investing your money is no different from anything else in life; your chances of success are much higher if you take the time properly plan and strategise your decisions. A good strategy is needed when choosing investments on your own, or when picking which advisor to help you. All too often, I meet people who have invested their money with nothing but hope that it will turn out positively and no real understanding of what they bought and why they bought it.
Advice: Define your strategy early on and try not to deviate from it.
TWO
Holding on to bad investments
If it’s not working for you, then get rid of it. Just because it’s gone down doesn’t mean it’s going to go back up. Bad investments are bad investments. I’m a firm believer of having faith in my investment decisions, but we all make mistakes from time-to-time. It’s better to realise quicker before we waste too much time sitting on a dead cat.
Advice: Dead cats do bounce, but just not very high.
THREE
Selling your investments
If something is worth buying, it’s worth keeping. In September 2005 shares in Apple were $1.38, today they are $110. How many people do you think have sold Apple shares during this period, I would hazard a guess at millions. What happens in the short-term is random, but over the long-term, you can make accurate conclusions. I am big proponent of the buy-and-hold strategy and believe it works for most investors.
Advice: Research your investments thoroughly and have faith in your decisions.
If you aren't willing to own a stock for ten years, don't even think about owning it for ten minutes.
FOUR
Timing the markets
Buy low, sell high is usually the first lesson any investor will learn. But, in my opinion, this shouldn’t be confused with trying to time the market. Guessing what’s ahead is not an investment strategy. If you are using an actively managed fund, then trust the manager you have chosen. You are paying them for their expertise through the management fee, don’t second guess them. If you are a passive investor, then a buy-and-hold strategy will be most successful for you.
Advice: Patience is the key and look at drops in the market as opportunities to buy.
FIVE
Working with the wrong people
If you are using a financial advisor and your investments are not growing, then you need to find someone new. No advisor can provide positive returns all of the time, but make sure you measure their performance against a benchmark, such as the S&P 500. High fees and commissions can often be the source of underperformance. Make sure you understand what you are paying from the outset.
Advice: Do your research and take the time to understand what value an advisor can provide and don’t be afraid to look for alternatives if you are unhappy.
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