As it has done annually for over two decades, Dalbar's famous investor behavior study - now in its 22nd year - continues to find that individual investors trail overall market performance, citing classic behavioral errors such as buying high and selling low.
Lance Roberts has written up an analysis of the latest Dalbar findings, with a focus on what advisors can do to recognize these tendencies and protect their clients from themselves.
The diagnosis and proposed solutions all sound reasonable, but I'd like to suggest my own suggestion, which strikes me as extremely obvious.
Since, in a crisis, people have a tendency to want to do something, it would seem that advisors could add significant value by making the steady raising of cash a portfolio planning priority. The idea is simple: raise cash to a) provide a buffer in time of crisis and b) as a means to go shopping when prices fall during said crisis.
(I don't claim to have invented buying low - I'm suggesting that advisors formally facilitate this concept in their client investment plans, and mention it here because it goes unmentioned in the two cited reports).
Sure, portfolio optimizers like to be all-equity since markets rise more than they fall. But, since nobody knows when stocks will fall, the above proposal seems like a safe way to make up for being less than 100% invested in stocks. Isn't it the "greedy" investor who ends up blowing up when the bubble pops?
So what do you think about this suggestion? Are we doomed to read Dalbar's 40th annual chronicle of investor underperformance years hence?
For now, here are today's advisor-related news and views:
- Jack Waymire offers advice on how to convert inbound search traffic into prospective clients initiating contact with advisors.
- Foolish, oblivious or probabilistic - Cullen Roche explains the three kinds of financial forecasters.
- New contributor Dennis Uyemura takes a close look at the sources of excess return for long-term investment-grade corporate bonds.
- Yellen cites jobs report and Brexit as reasons for Fed caution.
- ETFguide notes the disparate performance of risky, glamour stocks and safer, boring ones.
- Martin Lowy details a plethora of reasons the economy has not been growing.
- Kevin Wilson details a plethora of reasons the Fed has failed to fix the economy and risks plunging it into depression.
- Allianz Global Investors' Kristina Hooper is waiting to Brexhale.
- Not a plan to knock out shale but rather Sunni-Shia schism fueling oil production wars.
- Van Eck video (four minutes) on commodities rebound after long cycle of pain.