Most Investors Out-Think Themselves – Investing in 12 Pictures
The difference between investment and investor return is almost entirely attributable to the behavior—mostly wrong!—of average investors.
Back in 2014, Carl Richards at Behavior Gap was gracious enough to share twelve of his best graphics with anyone who wanted them for absolutely no charge. His hope was that financial advisors could take these images and use them to convey the importance of using a disciplined process to reach your investing goals.
I've taken Carl's images and used them to explain how to systematically approach investing based on these twelve pictures. Hopefully, they will help at least one individual take the necessary steps to reach their personal, professional, and financial goals.
Without further ado, picture number 10 . . .
Most Investors Out-Think Themselves.
If I were pressed to picks one of Carl Richard’s drawings as my favorite, today’s image would definitely take the prize.
Revelation folks—this is the big one!
- There is a huge difference between investOR return and investMENT return
The title of Carl’s blog is “Behavior Gap,” and today’s image takes that topic on directly.
The bar on the left is noticeably higher than the bar on the right. That’s because most investors do not have the discipline to stick to their strategies!!! As a result, they sell when “the world is ending” and they buy when “this time it is different.” Folks, the world is not ending, and it is NOT different this time.
Markets experience ups and downs. However, over the long term the markets have displayed a pronounced upward trend and an incredible degree of resiliency. Those who have the discipline to stick to their strategy have been rewarded. Those who buy and sell on “gut” feel have paid the price. And there are a lot of investors who have paid the price
The difference between investment and investor return is almost entirely attributable to the behavior—mostly wrong!—of the average investor.
The key to capturing investment returns is to follow an investment policy statement (IPS) and avoid the temptation to “outsmart” the markets. Think about it:
- Do you really think you have access to some sort of information that will allow you to be more successful on a specific investment decision than the millions of others who are following the same market?
When it comes to investing, you don’t think. You do. You do exactly what your written IPS prescribes (yes prescribes not describes!).
Today’s lesson is simple. If you don’t have a written IPS, you are in huge danger of experiencing a “behavior gap.” Take the time to draft and implement your IPS. It’ll save you thousands of dollars and, more importantly, countless hours of worrying.
Each month, for the next twelve months, I will be publishing another picture to help people understand the investment process.
If you have any questions about the topics covered in this post, feel free to reach out to me at any point in time. At F5 Financial, we enjoy working with entrepreneurs, corporate executives, and families to define their goals and make sure they have plans in place to execute and achieve those goals.
Investing in Twelve Pictures - Previous Posts:
- Picture 1 - You Have to Start with a Goal
- Picture 2- You Need to Focus on What You Can Control
- Picture 3 – The Best Solutions Are Simple
- Picture 4 – It is NOT a Plan it IS a Process
- Picture 5 – Over Time, You Will Learn New Things
- Picture 6 – There Will Be Ups and Downs Along the Way
- Picture 7 - You Will Fail If You Succumb to Fear
- Picture 8 - Diversification
- Picture 9 - Asset Allocation is the Key to Investing
Would You Like More Support?
- Do you have a well-defined Investment Policy Strategy that is used to drive your investments in support of a comprehensive financial plan?
- If not, would you like to partner with someone who is used to helping people get through these struggles and (then, with confidence) implement portfolio strategies in a systematic manner while focusing on your desired outcomes?
- If so, feel free to send us an email or give us a call. We’d love to have the opportunity to help you find a bit more peace of mind when it comes to investing.
Illustration credit: Carl Richards (Behavior Gap)
F5 Financial is a fee-only wealth management firm with a holistic approach to financial planning, personal goals, and behavioral change. Through our F5 Process, we provide insight and tailored strategies that inspire and equip our clients to enjoy a life of significance and financial freedom.
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