Do any of these stories ring true when you talk about how your portfolio is doing? Here are four tall tales that I keep hearing year over year when people first come into our offices. You are not alone, no one wants to admit that things haven’t gone as well as they expected. Or perhaps they just don’t know at all? Which story have you told yourself in the past?
- “I Have Killed It With My Stock Picks”
I have never heard somebody come to a party ready to talk about their mutual fund or life insurance policy. But stock picks? Oh yes, this is a party favorite. People LOVE to brag about the stock they bought that tripled or quadrupled in value whether it was a technology stock or some penny stock you have never heard of before in your life. What they won’t tell you about is all of their losers because they don’t remember them. How many people do you know who have gone to Las Vegas and told you they lost $1,000? That’s right nobody! They will tell you they broke even (which by the way is the code word for you lost).
- “I Beat The Market”
I often mildly chuckle when I hear this story. My first question is do you measure your portfolio on an absolute basis or on a relative basis? No matter what market you are talking about beating, if a market loses 40% in value and you lose 35%, are you proud of yourself? I’ve always thought absolute performance was much more important than relative performance. Also, which market did you beat? Is this the Dow Jones? The S & P ? The EAFE? Or, is it some made up market index nobody has heard of before in their life?
- “My Portfolio Has Grown Like Wildfire”
Investors often look at their 401(k) or brokerage statements and compare how their portfolios have grown quarter over quarter or year over year. However, when they look at the growth of the portfolio, they often don’t exclude their actual ‘new contributions’ year over year. This is especially true when they look at 401(k)’s which can have employee contributions, matching contributions, and profit sharing contributions. Do you know your actual rate of return or at the end of the day does your return include your own contributions.
- “This Time, I’ll Do Something Before The Next Crash”
Sure you will. You told yourself this in 2000 and 2008, so surely it will be different this time. What do you have in place currently to prevent downside risk if the market crashes again? What different diversification strategy have you deployed since 2008? Or, are you happy that now your investments have reached the level they were seven years ago and you have hopeful wishes that things will continue while you have everything on auto pilot? Remember, you are 15 years older since the last crash in 2000 and it’s near impossible in the decumulation phase to get income from your portfolio while it’s declining.
I’m not sure if one of these lies rings true for you, but a few smart money moves could change your investment course and get you on the straight and narrow.
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