There’s the joke about the woman watching the news with a report about a man driving the wrong way down the freeway. She knows her husband is in that area so she calls him on his cell phone to alert him and he says, “It’s not just one guy, they’re all driving the wrong way!”
In most professional fields when the vast majority of practitioners agree on the right way to do something, then that’s what you do. CPA’s follow accounting rules, doctors follow a diagnosis with a prescribed treatment and engineers know the formulas for how much weight a bridge will hold.
In the investment world, though, when everyone is buying the same thing, it often turns out to be wrong. The prices are driven up and the future results of investing in a certain type of investment may be much worse than expected. Following the herd often takes you right over a cliff.
If we look to the investment world this year, most investors seem to driving the wrong way down the freeway. They’ve pulled over $185 billion out of stock mutual funds so far this year while adding over $230 billion to bond funds and $300 billion to money market funds. The average large cap stock fund has gained 18.3% so far this year while intermediate term core bond funds are up just 7.7% and the average money market fund yields under 2%. While reducing stocks in favor of bonds and money market funds worked in 2018, that strategy isn’t working this year.
DALBAR is a research firm out of Boston that has tried to calculate the average investor’s returns for over thirty years. They’ve looked to the mutual fund data and determined that the average investor has earned an annual return of just 1.9% per year for the past twenty years through 2018. At that rate, an investor that started with $100,000 in 1999 would have gained just $45,000 in the twenty years versus buying and holding the average moderate allocation mutual fund which would have earned $141,000.
It pays to have a sound investment strategy and professionals who can help keep the latest headlines and emotions from destroying your retirement plan. If you don’t know what your net investment return is for your portfolio, you may well be earning average or even below average results. Schedule a complimentary meeting with us today to help get your portfolio on track to success in 2020 and beyond.