Why Has the Average Investors Performance Been so Bad Over the Last 20 Years?

Why Has the Average Investors Performance Been so Bad Over the Last 20 Years?

This week a very interesting chart from Richard Bernstein Advisors has been getting a lot of attention.

It turns out that the performance of a typical investor over the last 20 years has been terrible when compared to various asset classes that typically appear in a diversified portfolio.  The conclusion that most will draw is that the average investor will buy the overvalued or “hot” performing asset class and sell the undervalued “poorly” performing asset class.  This is compounded when investors sell entirely during times of volatility.

The question is then; “how can you help prevent the average investor from being their own worst enemy?” 

In my practice, it’s by focusing on what Charles Ellis calls “Values Discovery”. 

“Values discovery is the determination of each client’s realistic objectives with respect to various factors, including wealth, income, time horizon, age, obligations and responsibilities, investment knowledge and personal financial history, and designing the appropriate strategy.”

As part of this discovery process we use specific software to help clients understand the amount of risk they are comfortable taking and constantly measure that amount in their portfolios. 

Focusing on “Values Discovery”, being methodical and maintaining close contact are all part of helping Clients continue with their plan even through difficult and volatile times.  Helping them to achieve their goals while preventing them from becoming their own worst enemy.