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Friday, November 15, 2013

Investors are their own worst enemy

Jason Zweig had a excellent article in the Wall Street Journal about how investors get worse returns by chasing hot performance right before it disappears.

Essentially, investors get much worse returns than the funds they invest in.  The reason: they sell what hasn't been doing well and buy what has been doing well.  If they held the same fund over time, they'd get the same returns as the fund, but they buy and sell at the wrong time and get worse returns.

It's not just individual investors who are prone to this--professionals investors do it, too.  The problem is that investors are paying professionals to do the same thing they would do, but then they end up even farther behind because they've also paid a professional fee.

Investing is simple, but not easy.  To get good returns, you need to choose the right principles, and then follow them through thick and thin.  That's hard to do for most investors, especially because they pick professionals they like instead of the ones who are competent.

So was it ever.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

2 comments:

Alex Rodgers said...

I have been working with the http://www.mutualfundstore.com and it seems that they have some very good financial advice to give. Your advice has me wondering if I should have another Advisor on the side. Not that the MutualFundStore isn’t good, but having more than one advisor can’t be all that bad either. Should I do this?

Michael Rivers said...

The Mutual Fund Store isn't too bad because the aren't paid commissions for their advice. I suppose it depends on the quality of the advice you received and the qualifications of the advice giver.