Stop Beating Yourself and Stick to The Plan
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A recent Dalbar study showed that over the last twenty years the average investor returned between 2.56% and 3.83% This compares to an S&P 500 return over the same period of 9.14%.
How is it possible to have this much disparity? Simple. We have found the enemy and he is us. Many investors simply let their emotions control decision making and throw their plan out the window.
The real goal is not to beat the market but to make sure the market does not beat us. Most people would concede that this is an average endeavor. But really is there anything average about it when over the last 20 years investor returns have been significantly less than the market. So this is clearly a case of being average is great.
A significant number of people that participate in a 401k are completely unaware that one of their greatest risk isn’t losing money today, but not having enough for tomorrow. We con ourselves into thinking that we can time the market. The problem is that Mr. Market does a remarkable job of fooling the most people it can all of the time. The only true free lunch that the market gives us is diversification (1). We must do our very best to make sure a well-planned portfolio does not get thrown out the window because we lose sight of our goals.
Become more aware of our limitations and focus on the things we can control. This will train us to focus on our goals and less on performance.
Source: Dalbar Financial Research
1. Diversification does not eliminate the risk of experiencing investment losses