1.  What sort of competition do I face as an investor?

The market is an effective, information-processing machine. Millions of market participants buy and sell securities every day and the real-time information they bring helps set prices.

Competition is stiff! Millions of people buy and sell every day. Trying to outguess market prices is difficult for anyone, even professional money managers. This is good news for investors though if you just rely on the information that’s already factored into the price.

2.  What are my chances of picking an investment fund that survives and outperforms?

Flip a coin and your odds of getting heads or tails is about the same as selecting an investment fund that was still around 15 years later. Outperforming odds? WORSE! Only 17% of US equity mutual funds and 18% of fixed income funds have survived and outperformed their benchmarks over the past 15 years.

3.  If I choose a fund because of strong past performance, does that mean it will do well in the future?

Research shows that most funds in the top quartile (25%) of previous five-year returns did not maintain a top-quartile ranking in the following year. In other words, past performance offers little insight into a fund’s future returns.

4.  Do I have to outsmart the market to be a successful investor?

Financial markets have rewarded long-term investors. Historically, the equity and bond markets have provided growth of wealth that has more than offset inflation. Instead of fighting markets, let them work for you.

5.  Is there a better way to build a portfolio?

Instead of attempting to outguess market prices, investors can instead pursue higher expected returns by structuring their portfolio around dimensions of expected returns like company size, price, profitability and risk.

6.  Is international investing for me?

Global diversification can broaden your investment opportunity set. By holding a globally diversified portfolio, investors are well positioned to seek returns wherever they occur.

7.  Will making frequent changes to my portfolio help me achieve investment success?

It’s better to avoid market timing calls and other unnecessary changes that can be costly. Allowing emotions or opinions about short-term market conditions to impact long-term investment decisions can lead to disappointing results.

8.  Should I make changes to my portfolio based on what I’m hearing in the news?

Daily market news and commentary can challenge your investment discipline. If headlines are unsettling, consider the source and try to maintain a long-term perspective.

9.  So, what should I be doing?

Focusing on what you can control can lead to a better investment experience. Contact a financial advisor to help with the following…

  • Create an investment plan to fit your needs and risk tolerance.
  • Structure a portfolio along the dimensions of expected returns.
  • Diversify globally.
  • Manage expenses, turnover, and taxes.
  • Stay disciplined through market dips and swings.