Would you believe me if I told you that expert stock picks performed 3% worse than the average stock? It’s true. And for this, you pay a premium? Many mutual funds charge as much as 6% upfront for the privilege. Their marketing is compelling and ubiquitous, but at the end of the day, that’s all it is, marketing. And it plays to our fear, our greed, and our egos.

No One Can Consistently Predict Markets or Securities

The capital (money) invested in the companies is put to work making a profit. That profit is returned to the investors in the form of dividends, or higher stock price, so “buy and hold” does return you money over time. The question is which stocks? Do you pick just the Dow Jones Industrial Average (30 stocks), the S&P 500, or some other index? Popular today are index funds which attempt to mirror the stocks held in a particular index. Sounds good, until you realize that there over 20,000 mutual funds and 10,000 stocks worldwide, and the U.S. only accounts for roughly 50% of those. So you’re going to assume 5% of stocks in the index are going to perform better than all the rest? Good luck with that!

The Individual Investor Performs Worse Than the Market

A famous study by Dalbar showed that for the 20 years ended 2012, the average equity investor returned almost 50% WORSE than the S&P 500! Why? Fear and greed my friends, coupled with a significant lack of knowledge. I was taught a lesson very early in my investing career. I had a “tip” on a hot stock. It was going to be sold to AOL (remember them), and the stock was going to double. It did go up significantly, but not double. But the rumors were swirling, and the stock kept climbing. Except then it dropped like a rock. The cause? A mutual fund sold 1,000,000 shares. When you invest in yourself, you have to be better than at least half of everyone else, just to break even! Going back to ego, are you really that confident in your knowledge and skill? Or have you just been lucky up until now?

The Answer

  • Start with a plan: Investing has to follow a strategy, or you will have to be extra lucky to reach your goals.
  • Hire an advisor: Take your emotions out of the equation. Many people think that they don’t have enough money to invest in hiring an advisor, but at Core Wealth Management, we handle ANY size account, no matter how small, or how much you want to invest.
  • Determine your risk tolerance: Everyone is different on how much they can tolerate, and many times it even varies between spouses. At the end of the day, if your investments keep you up at night, you’re doing it wrong.
  • Allocate, Allocate, Allocate: One study showed that 94% of the return of the portfolio over time was caused by the asset class selected (e.g. large capitalization stocks), with only 4>#/strong### coming from an individual stock selection. Proper asset allocation based upon your goals and individual risk tolerance are THE most important things you can do outside of hiring an advisor.
  • Don’t forget the Tax Man: One of the benefits of working with Core Wealth Management is that we also address the question of tax efficiency. At the end of the day, it’s not what you make, but what you keep that matters. So involve your CPA with your Financial Advisor. They must work together for you to reach peak performance.

We Are Here To Help

Let our experts help you with any of you bookkeeping, payroll or tax needs. Contact our offices in Oklahoma City: 405-720-1244 or Tulsa: 918-477-7650 to get the help you need.