At a recent dinner table conversation on selfies, I was struck by the irony that, in our selfie-saturated world, we seldom take selfies of our investments. But we should. A successful investor knows how he or she has done. If you don’t, you are likely to be in the majority of investors with an unflattering self-portrait.
The evidence comes from DALBAR, an independent research company that has tracked individual investor returns for 40 years. Their annual survey, recently released, shows yet again that individual investors woefully under-perform the stock and bond markets. The results are below:
Why do investors annually do 4-5% worse than the market, earning returns little better than inflation? The average investor buys near the top and sells near the bottom. How to avoid this? The first step to solving a problem is acknowledging it. That’s where the selfie comes in. The next step is to make a plan — critically, what percentage of stocks vs. bonds you will own — and stick to it, regardless of the markets. If you can do it by yourself, great. If not, find an adviser. Either way, commit to controlling your emotions and to keeping score.
Selfies — taken by many, mocked by more — can actually serve a useful purpose. Well … occasionally.