Investors – Grow Your Portfolio

Investors is your portfolio growing or withering?

It’s crazy. It’s wild. And it’s the real deal. And it’s not my big hair. It’s why some investors can’t make even 5% on their money per year over a 20 year period to grow their portfolio.

Dalbar, a market research firm that focuses on the financial services industry, has been studying the performance of investors over the past 20 years. They found that the average equity investor earned just 3.49% per year vs. 7.81% for the stock market (S&P 500). The average bond investor earned 0.94% per year vs. 6.50% for the bond market (Barclays Aggregate Index).

Holy underperformance!

In a recent article, I said that if you invested $80k a year for 10 years and earned 5% per year, you would have $1,006,000. But the average investor isn’t making 5%!!! They’re making like 2 or 3%! They are leaving money on the table!

What is really going on here?

Why do investors underperform the stock and bond benchmarks? It’s all about mind games. Many investors:

• Make poor buying and selling decisions. They try to time when they should buy and when they should sell. Think they can beat the market because they are smarter than everyone else.

• Don’t realize how much risk they are taking and then sell when they cant take the volatility of their account going down.

• Are not as diversified as they think they are.

I want you to go with the odds.

Think of investing from an odds perspective. Investors, you need to think about ways to increase your odds of making money over the long term, not the short term. Investing for the short term is more like gambling. Investing for the long term is more like well . . . investing.

Strategy # 1 – Start investing with an amount of risk that you are willing to handle. Think about this before you invest. Not after. Build an investment portfolio that will keep you in the game of investing, even when you feel like throwing in the towel and cashing out. That means you have to go into this investment stuff with a portfolio that gels with your level of how much money you are comfortable with being down on paper.

Strategy #2 – Be diversified.

It all comes back to having a diversified portfolio. You have to own things that zig when others zag.

What is the benefit of doing this?

If you stay in the game of investing, you could make some serious money. That’s because your money will compound over time. That’s the way you could get to a million bucks.

Compounding of interest is when you make money on the money you have made.

Here’s an example:

Year 1 – Invest $80,000 and make 5% = $84,000
Year 2 – Invest $84,000 and make 5% = $88,200
Year 3 – Invest $88,200 and make 5% = $92,610