With as little as $100,000 invested, the average investor could lose out on a $335,000 opportunity the next time markets crash. I will make sure you have access to that opportunity.
I hope the month of February was a good one for you. We enjoyed some family time with our two teenage daughters. I know that having both our kids together with us isn't going to happen too many more times, so my wife and I cherish these breaks while they last.
I want you to be a very successful investor and to do that I assure you that I monitor your portfolio daily and read continuously on what is happening in markets and where the economic situation in the world is going. Having said that, you know my usual response to market movements is that we need to stay put. There are many good reasons for employing more of a buy and hold strategy but today I want to mention a situation where I may suggest changes.
Research tells us that average investors tend to do much worse than the investments they choose. For example, in a 2015 study, average investors did worse than the investments they own by a margin of 3.66% (source: DALBAR’s 22nd Annual Quantitative Analysis of Investor Behavior 2015 For period ended: 12/31/2015)
I am happy to report, with our guidance, this does not have to be the case. In fact, it can be the opposite. By following our advice, you can achieve a personal return higher than the investment vehicle you choose.
The primary reason average investors earn less than the investment vehicle they choose is bad behaviour. People tend to rush into buying equities (for example) after they have already had strong years. Even worse, average investors tend to sell investments once they go down. You, by the way, are not average.
I want you to be a very successful investor, and to do that we are going to advise adding funds when markets decline. In the attachment on slide 7 and 8 you can see what I am describing. If an investor had invested $I00,000 in TD Bank stock (are very reputable company) in 2006 the value of their account would have dropped to $68,739 by December 31, 2008 (Slide 7). This was a traumatic market crash. As the chart on slide 8 shows, you have 3 choices. First, Sell your holdings and go to cash or a GIC and never really recover, Second, hold your investment because you believe in it and you are handsomely rewarded for your patience, Third, add $50,000 while TD is on sale and beat out the investment itself buy buying when its low. The results are dramatic, by 2016 that account could range from $79,000 by going to GICs, $233,000 by doing nothing, or $414,000 by adding just $50,000 when others are scared.
Why I am telling you this now? Sooner or later we are going to have a market pullback. No one knows exactly when and no one knows by how much. I do know that my clients who add money at that time will be far more successful than those who sell or do nothing. I also know that adding money when times are tough is the way to beat out all those poor average investors.
Our fund managers have begun accumulating some cash so that we can automatically step in and buy more excellent companies at a great value for you but investing is a team sport and you and I also need to be prepared to do the same.