By: Jeremy Skoglund, VP Trust Officer
In 2013, Quartz (a business news organization), wrote an article that showed if you began that year with $1,000 and put all your money in each day’s best-performing stock in the S&P 500 for 241 days, you would have had $264 billion in your account. So why don’t we just do that? I don’t even need to be greedy. I’ll go with a small fraction of that, say $1 billion. The problem with this strategy is that you can only accomplish this if you know ahead of time what the best-performing stock is going to be. It’s a form of market-timing that looks great on paper and works really well with 20/20 hindsight.
There is plenty of research out there that shows market-timing just doesn’t work. Market-timers have been shown to be right not even a quarter of the time. This means that if you made investment decisions based on people that claim they can time the market, 25% of the time, you would make the right decisions. I don’t like those odds. Two Duke professors found that by following the best 10% of all market-timing newsletters, you could have earned an annualized return of 12.6% from 1991 to 1995. That’s a pretty good return, but if you had just bought the index over that time, your return would have been 16.4%.
The best approach when investing is often to pick investments that match up to your risk tolerance on the front end and do nothing with them going forward. Having someone manage your investments can help you steer clear of the noise that says to get out of the market when it’s falling or get into the market when it’s rising. They will help you come up with a long-term strategy that will drive your investment decisions and be more in line with your objectives and not the objectives of everyone else in the market. And, as we’ve written about before, having an advisor can add anywhere between 1.5 – 3.0% to your portfolio per year, which is much better than the 75% chance that you will do worse than the market by listening to market-timers.
If you would like to visit about your investments, would like someone to help you with a strategy and see your portfolio do a little better, give us a call to learn how we can help you: (701) 857-7150.