CAR #0117-00488
Top 10 Things to Know and Do to Help Achieve Financial Independence
Behave Your Way to Investment Success
by Yvonne D. Hall, CFP®, CIMA®
Investor behavior is a primary determinant of investment success, according to data from Dalbar, a Boston-based financial research firm. This organization studied investment results of mutual funds and mutual fund investors from 1994 through 2014. The report indicates that the average stock mutual fund produced a 9.59% annualized rate of return for this period, while the average stock mutual fund investor achieved only a 5.19% annualized rate of return¹. Poor investor behavior can stand in the way of solid investment results. With that in mind, here are ten tips to behave your way to investment success:
1. Learn to live on less than you earn. If your budget feels tight on 100% of your income, how much worse will it feel on 90%? The 10%, invested wisely, can make a huge difference over time.
2. Set Goals. Goals should be personally meaningful, written, and very specific (what, when, how much, etc...). Never forget that money is just a tool. It is what we choose to do with it that makes life fulfilling.
3. Be Committed. Day-to-day emergencies will always come up and challenge your focus on your long term goals.
4. Have a Strategy. A written, structured approach is key to ensuring that you -- and not your emotions -- are in control of your plan.
5. Understand AND apply principles of asset allocation and diversification. These are the keys to managing risk and to achieving long term success toward your goals.
6. Be Honest. Know your own risk tolerance and comfort levels, and don't feel pressured to be more or less conservative based on what you or others say you should be doing.
7. Don't procrastinate. Today is the best possible day to start/restart your program. Yes, it is better to start investing early, yet it is far better to start late than not at all. Time is either a friend or an enemy when it comes to investing. It is never neutral. The good news is -- you get to choose which one it is.
8. Monitor your progress. While you don't want to micromanage your plan or make changes too frequently, assess your progress to your goals at least once a year and make adjustments as required.
9. Have realistic expectations. Know what the long term rates of return have been for the components of your portfolio, and expect returns significantly above/below these to normalize that return over time.
10. Be Patient. An investment plan is for a lifetime, and it can – in many cases, provide a legacy for even longer. Don't let the static interference of what is happening in the markets today block your vision of the future you want to achieve.
Yvonne D. Hall, CFP®, CIMA® • Managing Director – Investments
Wells Fargo Advisors
1180 NW Maple St, Suite 150 • Issaquah WA 98027
,
425-369-5102 • Toll Free: 1-866-209-0482 • Fax: 425-369-5198
Wells Fargo Advisors does not render legal or tax advice. The material is distributed solely for information purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC. Member SIPC.
Asset allocation cannot eliminate the risk of fluctuating prices and uncertain returns.
Diversification does not guarantee profit or protect against loss in declining markets.
The views expressed by Yvonne Hall are her own and do not necessarily reflect the opinion of Wells Fargo Advisors or its affiliates.
¹Source: “Quantitative Analysis of Investor Behavior, 2015” by Dalbar, Inc. and Lipper. Dalbar computed the “average stock fund investor return” by using industry cash flow reports from the Investment Company Institute. The “average stock fund return” figure represents the return for the Lipper Standard & Poor’s 500 Index Funds Average. Returns assume reinvestment of dividends and capital gain distributions. The fact that buy-and-hold has been a successful strategy in the past does not guarantee that it will continue to be successful in the future. The performance shown is not indicative of any particular investment. Past performance is not a guarantee of future results.