Thought of the Week / July 16, 2021
You may have heard of Peter Lynch, he managed the Fidelity Magellan fund from 1977-1990. During that time, he averaged an annual return of about 29% per year. It would seem if you were in this fund, you would have been feeling good and riding these highs; however, the average investor actually lost money in this fund.
Why is this? Unfortunately many investors end up acting out of emotion instead of discipline. They follow the herd and chase performance. They sell in a panic, when the fund underperforms, and end up buying when it’s at its peak.
Charles Ellis, founder of Greenwich Associates, states that in his view the secret to long term success is not necessarily having superior intellectual skills, but rather emotional skills. Meaning, once you have established your investment plan, you must be prepared to stick to it through the ups and the downs. A great analogy he uses is that of a marathon runner: Just like a long-distance runner knows how to run and complete their race at their own speed, investors too should establish the pace they are comfortable with based on their financial goals and stick to it.
Monitoring your portfolio is important for navigating the ups and downs of the market; however, for many investors their biggest adversary when it comes to their investment returns is themselves. It is important to manage behavioral impulses and avoid emotional buying.
This is why it’s so important to have an advisor who will be there to coach you through the ups and downs. Having an advisor you trust will help you avoid acting on emotion and keep you focused on your strategy. Avoid “the herd” and the news, and make sure you have a trusted advisor, solid retirement plan, balanced portfolio and quality investments. This combination will help you feel confident during market highs and lows and give you peace of mind in retirement.
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