Be A Rebel With Your Investments

The media has no shortage of investment tips, tricks, software and gurus to try to “help” us with our investments. From bitcoin to gold, from hedge funds to annuities, from talking heads to late night infomercials, it is easy to find people saying everything and anything to get you to try their product.

According to a well-known study of investors and their behavior, DALBAR’s Quantitative Analysis of Investor Behavior (QAIB), investors completely change their investment portfolio composition roughly 3 times every 10 years.

Think about that for a minute. The average investor completely changes 100% of the holdings in his/her portfolio about every 3 years. Why is that?

Here are a few reasons why I think this is true:

• Investors think they see an opportunity to get more return than what they are getting
• Investors get scared when their portfolio goes down and want to “stop the bleeding”
• Advisers are introduced to a new fund/product through their broker/dealer and try to sell it to their clients for a commission.

If it seems that investors (and perhaps their advisers) aren’t sure how to build portfolios that do not need to be revised every few years, it may be by design.

Wall Street is an industry that needs people to buy and sell regularly to make money. Without trading, there is no way for them to make money. This is due to what is called the bid/ask spread. It’s a gap between what a stock or bond sells for and what it is bought at; the difference is what gets paid to the marketmaker. The marketmakers are the folks who actually make the trades and the spread is their cut.

So, when you completely change your portfolio every few years, that means that there are cuts all across the board. Every buy and every sell generates a spread, and you end up paying those who enact the trades you want them to make.

What if there was a way to minimize the buys and sells?

Well, as it turns out, there is.

And, the concept is not new. It began as early as the 1950’s, and the research continues through to today. Academic research has shown over and over again that you can put together your portfolio one time. You can set it up that is designed for your personal risk tolerance (what percent up and down can emotionally handle), and then rebalance systematically back to these targets.

This is the way of the rebel investor.

The rebel investor doesn’t follow the crowd.

The rebel investor isn’t swayed by gimmicks, fear, or greed.

The rebel investor has a true purpose for his/her money.

The rebel investor remains calm in spikes and crashes.

The rebel investor sets his/her portfolio and can weather the fluctuations.

The rebel investor uses a coach to stay on track.

Are you a rebel investor?

Contact me if you want to figure out how best to build your portfolio. I look forward to meeting you!