Has Your Financial Advisor Misled You?

Do you know what drives your investment returns? If you’re like most people, the first thing that comes to mind is probably market performance. It’s not surprising that this is the popular thought since many advisors consistently mislead their clients by telling them that the performance of their investments is the key factor in a successful retirement strategy.  

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Picture this: you head out on the water and put together the most outstanding day fishing you or anyone you know has ever experienced before. The next time you go out, you take the Skunk. From then on, you start chasing that outstanding day’s catch results. You search for the same conditions and results but are frustrated when they don’t come together and you don’t find success. With fishing, like the market, there are factors you can’t control. You can’t predict what the economy will do, just like you can’t predict what the fish are going to do. But you can control your habits and perfect your technique.

If it’s not about returns, then what truly matters when it comes to long-term investing results? The truth is that long-term, real portfolio returns are only slightly affected by the relative performance of investments. What actually drives returns is the behavior of the owners of those portfolios. Every advisor wants to tell their clients that their particular choice of investments outperforms the investments of their competitors, but that’s just not true over long periods of time. It just doesn’t matter that much when we’re thinking about long-term retirement planning success.  

The Behavior Factor

Simply put, there’s no beating the market over long periods, and attempting to do so is time-consuming and potentially dangerous. A 2015 DALBAR study, Quantitative Analysis of Investor Behavior, showed just how poorly investors perform relative to market benchmarks over time. What did they discover to be the biggest reason for underperformance by investors participating in the markets? Their decisions. Behavioral biases lead to poor investment decision-making.

Many investors fall prey to emotional decision-making and, in an attempt to avoid losses or cash in on a potential victory, they buy high and sell low. This behavior lowers their overall return and puts their financial plan in jeopardy. Other habits that put your financial plan at risk are not maintaining a liquid emergency fund and drawing down your retirement accounts for non-retirement expenses.  

How Important Is Behavior?

The annually updated research that DALBAR provides shows the importance of behavior, especially when looking at the most recent 20-year average compound rate of return for the average large-cap mutual fund in the U.S. and the average return realized by the average equity mutual fund investor. Although the numbers will change from year to year, the relationship between the two stays rather constant.  

Over 20-year periods, the average fund investor ends up with less than half of the return of the average fund. In a financial world where almost every advisor is touting his ability to outperform the market as the reason he is better than the guy across the street, the sad truth is that his investor is underperforming his own investments by a large margin.

A goals-based strategy with appropriate allocation and diversification coupled with successfully managing investor behavior will account for 90%+ of real world investor return over time. Furthermore, working with a trusted financial advisor who understands that investor behavior is the key determinant of financial success can help you achieve higher returns by avoiding mistakes. Here are a few ways to use your behavior to help your investments, instead of hurting them:

●      Keep a long-term perspective. The markets fluctuate every day. You’ll only feel increasingly stressed and prone to make emotional decisions if you monitor your performance and adjust your investments every time something unexpected happens. It’s more important to maintain a long-term view and stick to a disciplined approach.

●      Look for cost-effective investments. It’s basic math — gross return less costs equals net return. Avoid investments with high costs or hidden fees, which can drastically eat away at your assets over the long-term.

●      Rebalance to maintain proper allocation. We like to meet with our clients at least once a year to review their portfolio and rebalance as needed. This helps ensure that your portfolio still reflects your appropriate level of risk and is adjusted for any significant changes in your life. If you have a long-term investment horizon, speculation and day to day market fluctuation should not be a concern.

The Performance Measurement That Matters Most

When it comes to investing, what matters most is not market performance or this year’s hot stock picks; it’s applying the right behaviors to a personalized strategy based on your specific goals and needs. Has your financial advisor talked to you about how investor behavior is the key determinant of financial success and how it is addressed in your retirement strategy? Or were you pitched on a value proposition built on the idea of outperformance?

By using a disciplined approach, focusing on the long-term, and working with an unbiased advisor who understands investor behavior, you can work towards financial independence and a successful retirement. To learn more about your investment portfolio and what matters most for your specific situation, please call me at 949-481-1807 or email This email address is being protected from spambots. You need JavaScript enabled to view it.. There is never a charge or obligation for your first wealth consultation.

Meet Rick

Over a 25-year career in financial services, Rick has helped hundreds of business and personal clients meet their investment goals by developing risk-efficient portfolio management strategies. He holds degrees in Economics and Psychology from the University of California, Irvine.

The water is Rick's second home: He and his family have been fishing Southern California and Baja going on four generations. In the 1940s, his grandmother worked at the Cannery Restaurant in Newport Beach—when it was an actual Albacore cannery. In the 1950s, his father was on the crew that built two of the boats still in service at Dana Wharf Sportfishing.

To schedule a complimentary wealth consultation or to get a second opinion on your financial plan, contact Sportfishing Financial today. To learn more about Rick, visit his website and connect with him on Facebook. To ask a question or get our list of upcoming fishing trips, call 949-481-1807 or email This email address is being protected from spambots. You need JavaScript enabled to view it..