The Investor’s Dilemma

Are you caught in the Investor’s Dilemma?

Investing is usually done in an effort to have money to accomplish your life’s goals and dreams. Knowing you have money for the future can offer a sense of peace in the present. However, instead of bringing peace of mind, investment decisions are often complex and confusing, leading to overwhelming feelings such as distress, worry, and anxiety. These concerns often plague the minds of investors:

HAVE YOU EVER WORRIED ABOUT…?

• Getting high enough returns on your investments?
• Maintaining your standard of living in retirement?
• Affording high quality education for your children or grandchildren?
• The next market crash?
• Missing out on the latest greatest stock tip?
• Making sense of all of the investment information available?
• Someone else having a better portfolio than you?
• Not having enough money to care for loved ones?
• Getting bad investment advice and, worse yet, paying for it?
• Buying high and selling low?

IF YOU CAN ANSWER “YES” TO ANY OF THESE QUESTIONS YOU ARE CAUGHT IN THE INVESTOR’S DILEMMA IT IS UP TO YOUR FINANCIAL COACH TO GET YOU OUT OF THIS ANXIETY RIDDEN DILEMMA AND LEAD YOU TO LIFE LONG FINANCIAL PEACE OF MIND.

DEFINITION

The Investor’s Dilemma:  A cycle explaining the human side of investing

1. Fear of the Future: The cycle begins with a sense of uncertainty about the future, characterized by questions like “Will there be enough money to maintain my standard of living? How much do I need to save? How do I know what is the best investment?” The media and advertisers prey upon your fear of the future in an effort to sell you their products.
2. Forecast and Predict: Because of your fear of the future you have a strong desire to comprehend and predict future events. If someone could tell you what is going to happen with inflation, long-term interest rates, share prices, overseas markets, then there would be less to fear about your future from an investment perspective. Along these lines, investors are frequently convinced that someone has the information, power and insight to forecast the future. There is no shortage of investment firms and brokerage companies who lead you to believe that they can predict the future…and thus you put your money with them.
3. Track Record Investing: The primary methods investors employ to convince themselves that the future can be foretold is through track-record investing. This means they look for stock managers who have performed better than the market in the past with the hope that they will continue to have superior performance in the future. Past result are no guarantee of future returns.
4. Information Overload: In the past, gathering information was the best way to guide prudent investment decisions. However, the current Information Age has created access to so much information that it is easy to become overloaded. Investors feel compelled to understand all of the information: the Internet, books, newspapers, magazines, TV talk shows, advertisements, friends’ experiences, etc. Indeed, instead of reducing fears, this deluge of information often intensifies doubts about investing.
5. Emotion-Based Decisions:You never can overcome your own humanity. As much as we would prefer to think that we make investment decisions based purely upon logic, advertisers and journalists are well aware that emotion ultimately drives most investment decisions.As a quick demonstration, consider the statements below. See if you can match each statement with the emotion being expressed (answers listed in the key below).
   
6. Breaking the Rules:As in any endeavor, there are certain accepted rules that can simplify our ability to achieve success. In the area of weight-loss, for example, the rules are straightforward: 1. Eat less 2. Move more.The rules are not much more complex when it comes to investing.The commonly held rules of investing are 1. Own equities 2. Diversify 3. Rebalance.And, the “golden rule” of investing is:Buy when prices are low and sell when prices are high.All of these rules sound simple enough. However, it isn’t knowing the rules that is hard; it’s consistently following them that challenges most people (in weight loss or investing). When people make investing decisions about the future based on track-record or emotions, without realizing it, they wind up breaking these rules, thereby sabotaging their portfolio.The Good News:With the proper investment strategy, your portfolio could be set up to follow the rules without interference from emotional decisions.
7. Performance Losses: Put all the phases of the Investors’ Dilemma together and what you get are performance losses. Simply stated, investors fail to capture the kind of returns they expect. Typically, they expect to get the returns they see listed in the newspaper, online, or in magazines; however, it is rare that the average investor actually achieves the same returns as published in the newspaper. Dalbar, Inc., a leading financial-services research firm, has demonstrated an investor’s performance does not equal investment performance. In 2000, Dalbar found the following annualized returns for investors, whose average holding period for a mutual fund was 2.6 years:

• The average equity mutual fund investor realized an annualized return of 5.32%, compared to 16.29% for the S&P 500.
• The average fixed-income investor realized an annualized return of 6.08%, compared to 11.83% for the Long-Term Government Bond index.
• The average money-market fund investor realized an annualized return of 2.29%, compared to 5.82% for Treasury Bills and 3.23% for inflation.

These numbers ruthlessly make their point. As a result of each of the phases of the Investors’ Dilemma, investors are continually getting in and out of the market, each time chinking away at prospective (and frequently expected) returns. This specifically can be seen in the case of those who attempted to ride the wave of Technology stocks. Sadly, some of these investors lost between 20-70% of their wealth practically overnight.

Obviously, when this effect is compounded over a period of years, the potential for reaching financial goals is significantly decreased. These kinds of losses can’t help but create additional frustration and fear about the future, thereby initiating the Investors’ Dilema cycle all over again.

The Results: Not Enough Money and No Peace of Mind

In the end, the result of The Investors’ Dilemma is people who don’t have enough money to accomplish their most meaningful life goals and dreams. Not only are they not where they want to be financially, but they have also spent a large portion of their lives fraught with stress, anxiety, concern, and fear that initiate and perpetuate the dilemma. With Knowledge And Guidance, It Really Is Possible To Experience The Peace Of Mind That Comes With A Lifelong Investment Strategy And End The Investors’ Dilemma Forever.

Ending the Investors’ Dilemma

Here are some “Do’s” and “Don’ts” to help end the Investors’ Dilemma:

With Knowledge And Guidance, It Really Is Possible To Experience The Peace Of Mind That Comes With A Lifelong Investment Strategy And End The Investors’ Dilemma Forever.