3 Secrets To Beating The Average Investor Personal finance
The hardest part of this tip is just trusting your guts against opposing messages.
3. make a diversification plan and stick to it
Finally, while many investors plan to diversify their portfolios across multiple asset classes and classes, few investors are fully executing these plans. And those who don’t compare their holdings to this plan often enough, updating them as needed. This type of care takes time, which takes time away from more satisfying and rewarding activities like getting into a hot stock. This is why it is so easy for a portfolio to become dangerously out of balance as days turn into weeks and weeks into months.
The above-average investor knows, however, that this kind of mundane rebalancing activity is worth the time.
Mutual Fund Managers at Hartford tightened the numbers early last year, comparing a regularly rebalanced 70% equity / 30% bond portfolio to the same starting portfolio that was never rebalanced. After 20 years, the regularly rebalanced portfolio was 8% larger than the ever rebalanced portfolio.
The 8% difference between a regularly rebalanced and never rebalanced portfolio may not seem significant. If you’re talking about a $ 1 million portfolio, however, that’s not a drastic change. Also keep in mind that Hartford only used the S&P 500 Index and Bloomberg Barclays US Aggregate Bond Index as a very simple test portfolio, ignoring the effect of sector diversification and market capitalization. The more detailed your allocation plan, the more it can benefit you … as long as you stick to it.