Decades old investment debacles haven’t still learnt a good hand to the strategy making faculties of the average folk. Why do we say so? We say so because year after year, stock after stock and failure after failure, the retail investor is still making the blasphemous mistake of buying a stock when the stock prices are high and selling the same when the prices start to plummet. A ten-year study taking into consideration the Morningstar data reveals the ugly side of an average investment strategy. the behaviour gap is speaking volumes in revealing the difference between the average investment returned and the price that the average investor earned.
Take a hypothetical example. Lets’ say there is a mutual fund with an annual return of 10% for a ten-year average. What that means is, if you take your hard earned money, place it in the mutual fund, without adding or taking anything out of it then after 10 years you would have earned a return of 10% per annum. But this rarely happens. How many people do actually store their savings in such manner for the long-run?
The hold time for investments has consistently declined till the 2000’s. clearly, the current generation of millennials would not be defined as a long-term investor. Human beings are genetically designed to be drawn towards the things that make pleases them and be repelled from the things that make them feel pain. While in the evolutionary process of survival this trait has helped us leaps and bounds, it has made us fall face-first on the ground. Reading between the lines has got us believing that the average mutual fund return for the last 10 years in the USA was 8.18 percent however the average return that the investor earned only came out to be 6.52 percent.
There are mutual funds of different kinds that have been designed to help the investors balance out their risks in an investment portfolio. But even in this category, people lost the game badly when it came to numbers. Picture this, the average balance fund return for 10 years in the USA was 6.93 percent while the investor only managed an average return of 4.81 percent. The numbers may reveal a small gap but it is humungous when it comes to losses, speaking in terms of dollars.
How do people react? They see that a stock is going up, they start tracking it, keep observing if the trend is likely to be in that direction or not. On top of that, they get a hold of a CNBC program which pokes them with this one hell of a question screaming, why haven’t you still bought that stock?
What you need is a cool mind Take the money, stash it in one place and then forget about it for at least a few years. Provided that the stock in question is a promising one, the offering product by the organization is or has a future demand, you would certainly be witnessing handsome gains on the number invested.