Why would you consider ANY path leading to less financial success? When you invest, you want high returns. You want success. However, for many investors, they unknowingly follow paths leading to less success.
Consider the chart below showing several examples of investing in different funds. One path uses the S&P 500 as a comparing index. A closer look at the circled items shows the equity funds under performed by a margin of -6.18% on the 30 Year annualized. For the 12 months, equity funds under performed -4.70%. This type of investing puts you on a path to less success.
You can see the path of the average equity mutual fund investor was less successful. The chosen investments under performed.
In a post written by Lance Roberts, he explains some of the problems associated with popular investment approaches. Some investors think they can beat an index. An index is a benchmark and cannot be beaten.
Says Roberts, “The index is a mythical creature, like the Unicorn, and chasing it takes your focus off of what is most important – your money and your specific goals. Investing is not a competition and, as history shows, there are horrid consequences for treating it as such.”
In the same post, Roberts tells of another path that leads to less success is investor psychology. This graph shows the difference between reality and expectations.
Again, using the S&P 500 as a benchmark, you can see the underperformance of the investor and the percentage of performance lag shown in red. According to Roberts, “…the reality is that investor psychology is the biggest impediment to long-term success.”
Studies have shown that the biggest reason for less success by investors comes down to psychology. And it is mainly behavioral biases that lead to poor investment decision-making.
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