Rockbridge Named #81 on CNBC's Top 100 Fee Only Wealth Mgmt Firms List
Jul 13

Investor Behavior: Market Timing Pitfalls

by Patrick Rohe, CFP®

Dalbar, an independent communications and research firm, has done countless studies trying to quantify the impact of investor behavior on real-life returns.  Their studies focus on the difference between investors’ actual returns in stock funds to the average return of the funds themselves.  Basically, they are comparing the return the investor gets to the return the investments get.

The results are eye-opening!  In 2011 Dalbar found that the average equity fund investor underperformed the broad U.S. index return (S&P 500) by 7.85%.  This difference in return comes from investors making classic behavioral mistakes time and time again.  In my eyes, an investor’s biggest hurdles to reaching financial success are their own ego and emotions, and these are probably the two hardest things to overcome!

The numerous market gyrations of the past decade have challenged even the most disciplined investors and caused many people to run for safety.  These tend to be the most challenging times for us as advisors, because it involves avoiding what feels like a good decision at the time and helping you come up with what might be the more logical one.  Basically, helping YOU, not your EMOTIONS, run your retirement account.

The two vertical lines on the graph at right (at March ’09 and September ’11) represent the times in which we fielded the most client calls here at Rockbridge.  The markets were down drastically and, rightfully so, investors were nervous about what to do with their money.   The common theme we heard was, “Should we pull the money out now and wait for the market to gain some stability?”  Much to their discomfort at the time we did the contrary and held course.  The blue line shows the outcome of staying invested for the full decade, while the red line shows how moving out of the market and into “cash” at the wrong times can affect your long-term performance.  In this particular scenario, poor timing in the market cost the investor over $70,000 during the decade.

The picture below also illustrates what not to do in investing.  If you buy when the market is up, or sell when the market is down (out of fear or your emotions), you will do nothing but hurt yourself financially.  So maybe we need to look at this drawing upside down and remember what Warren Buffet continually preaches:  Be fearful when others are greedy and greedy when others are fearful!

Remember that successful investing is about “controlling the controllable and ignoring the rest.”   We can’t control the direction of the financial markets, but we can avoid making costly mistakes by attempting to do so.  The smartest people I know are the ones who understand that they don’t know everything and put policies in place to protect their portfolios from their own emotional behavior.  When it comes to financial success, slow and steady does WIN the race!

About the Author

Patrick Rohe CFP is a Certified Financial Planner at Rockbridge. “Upon graduation from Cornell University, I was recruited by a large brokerage firm. After months of sales training and minimal help in understanding even the basics of investing, I quickly learned that the brokerage firm model was not for me. I then made the transition to Rockbridge, a fee-only financial planning firm, where I truly enjoy helping people and making a difference in their financial lives!”. Patrick is a graduate of the Applied Economics and Management and Animal Science (B.S.), Cornell University, and the CERTIFIED FINANCIAL PLANNER™, (CFP®) program. Learn more and/or Contact Patrick.


You Might Also Like

Other articles filed under Investing

New York State Office of Unclaimed Funds

February 8, 2019
Over the summer, we had a client ask if there was a place to look for existing accounts or funds they or family members may have accumulated and forgotten about over the years. That sparked Julie’s memory of the New...
Continue Reading

The Reward of Tuning Out 11 Years of Noise

January 22, 2019
This recent market downturn has many investors drawing parallels to how they felt during the infamous 2008 financial crisis. The last 11 years have been a roller-coaster ride for investors. Right after seeing market highs in late 2007, investors experienced...
Continue Reading

2018 Market Insights

January 18, 2019
2018 was a woeful year for investing. All major stock market indexes were down, bonds enjoyed a year-end rally to finish flat, and commodities such as gold and oil fell. Seeing all asset classes drop in unison is unusual and...
Continue Reading

Invest Like You’re Driving, Drive Like You’re Investing

January 14, 2019
I’ve been watching people drive all my life. I’ve been an individual investor and an investment advisor guiding clients for more than half of my adult life.  I’m a curious soul and during a recent trip from Syracuse to Atlanta,...
Continue Reading

Quarterly Market Commentary – January 2019

January 11, 2019
Stock Markets December’s market reminds us that risk is real – even after the uptick at the end of the month, a global stock portfolio is down about 15% for the quarter and 12% for the year. Technology stocks (Amazon,...
Continue Reading

‹ Back to Blog Home

getting started is simple

315.671.0588 info@rockbridgeinvest.com Schedule a meeting Sign Up for Our Newsletter