Rewarded for being lazy

By Sketch Guy via   Article

The Best Investment Strategy? Getting Out of Our Own Way

“The behavior gap is the difference between what the average investment returned and what the average investor earned. … Who would buy a long-term investment and actually hold on to it for the long term? That would be silly! Most people buy and sell. … Today, we hold our stock investments for about six months. We’re clearly not what anyone would think of as long-term investors. …

As Morningstar’s data shows, the average equity mutual fund in the United States had a 10-year average return at the end of 2013 of 8.18 percent. The average investor only earned 6.52 percent. That’s a difference of 1.66 percentage points. …

Balanced mutual funds are designed to help us manage our behavior by including both stocks and bonds. They provide a cushion in down markets in exchange for not hitting it out of the park on the way up. … the average balanced fund returned 6.93 percent, but the average investor only managed 4.81 percent. …

The hard part of investing isn’t picking the best investment. Instead, it’s sticking with the one we’ve picked. Only then will we have a shot at closing the behavior gap over the next 10 years. …

It reminds me of my favorite Warren Buffett quote: ‘Benign neglect, bordering on sloth, remains the hallmark of our investment process.’ As he’s demonstrated more than once, investing is one place where we are rewarded for being lazy.”


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