To Earn the Best Investment Returns, You Must Do It Yourself!
August 22, 2006 -
Ever wondered if you’d be better off with an independent financial consultant or investing your stocks yourself than with a huge investment firm? To understand the answer to this question you must first be able to separate investment fiction from investment fact.
The key to sorting through all the “noise” that investment firms and financial consultants throw at you is to be able to deconstruct the myths they propagate. What is ultimately so confusing about working with big investment houses is that they combine fact and fiction into a top-notch convincing marketing campaign to get you to turn over your dollars to them.
For example, let’s consider the often repeated investment firm strategy of being fully invested. Though being in cash is most definitely good at times, no matter if global markets are up or down, there is still money to be made somewhere, whether in put options, investing in non-stock assets, or by investing in other parts of the world. However, I do have a problem with the way Wall Street firms use fear to achieve this. Let’s re-visit the commonly quoted “fact” that:
“If you had missed the best 90 performance days in [the U.S. stock] markets from 1963 to 1993 your average annual return would have dramatically fallen from 11.83% to 3.28% a year.” (Source: University of Michigan)
If we were to analyze this statement, then it is quite reasonable to analyze the assumptions behind this statement. Is it truly realistic to think that anybody’s luck would be so bad as to miss the best 90 days over 30 years even if they chose to be in and out of the market at certain times. What are the chances that they would miss all 90 of the best performing days? One in a 580 million?
1 comment August 22nd, 2006
