Broker Check
Trading and Performance

Trading and Performance

January 29, 2016

It seems like every day when we look at a newspaper there is the "Apocalypse Du Jour".  How can anyone who looks at the news (or their smartphone) not have fear from time to time?  Fear is understandable.  Acting on fear, however, is an entirely different matter. 

Actions make the difference.  The dominant determinant  in long-term financial outcomes isn't investment "performance" (Alpha), it's investor behavior.  In my experience you can follow a plan or you can try to time the markets.  You can't do both.  This is what separates the successful investor from the unsuccessful investor. 

As long as the portfolio is allocated correctly for the long-term needs of the client, the more often you change a portfolio, the lower your return will go.  So there is recommended annual rebalancing of a portfolio to correct allocation percentages, and then there is trading.   There is an inverse relationship between trading and performance(see attached reports from  The Journal of Finance and The University of Georgia).

As a financial planner I have no forecast for the markets or the economy, and no reputable advisor should profess to.  I'm not qualified to forecast and probably no one else is either.   That's actually good news in many ways. It keeps the focus on having a plan and staying on that plan, regardless of the fads and fears of the moment.



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