We humans are emotional beings. There’s been lots of study done and one thing is clear. The average investor underperforms the broader market by a significant margin. Why is this? Its because we get scared and pull our money out of the market when we shouldn’t. We also get greedy (or possibly scared of missing out) and then invest into markets that have performed well for other people and then subsequently get burnt when the overvalued asset comes back to the mean.
Why does history repeat itself so reliably? Will we ever learn?
There is some good news though. Its been shown that people who deal with financial advisers typically perform better than those without. The numbers are significant too. If you google “Vanguard Adviser Alpha” you’ll see that they estimate it to be as much as 3% pa.
Is it because the advisers are all seeing oracles? Nope (although some like to believe this!!).
I believe the real reason is that they simply bring rational thought to an emotional situation. Decisions are generally better when made with some logic, sense and reason.
So, 3% pa looks pretty good next to our fees doesn’t it?
Why don’t we talk?