Global Courant 2023-05-10 16:40:00
Main image: Moneyweb
Most investors find investing in the stock market a daunting task. However, it is crucial that you trust your asset manager to invest your assets wisely, and it’s not always about timing the market, it’s about time in the market. Unfortunately, many investors make long-term financial planning mistakes by selling out underperforming investments and buying in on the flavor of the month based on short-term yield differentials. This behavior increases the risk of permanent capital destruction.
Historical returns data show that the performance of active asset managers varies over time and that investment strategies perform differently in different market conditions. When uncertainty is high, clients tend to focus on the short term, resulting in suboptimal decision making.
The past three years have been a rollercoaster ride, not only in the financial markets but also in everyday life. A pandemic that nearly paralyzed the world, an ongoing war in Europe, a cost-of-living crisis triggered by decades of high inflation and two bear markets have made investors cautious and compelled to act. They often change asset managers incorrectly.
As asset managers and financial advisors, we are responsible for providing sound financial advice and educating clients about behavioral biases that can lead to poor decision-making. Investors often struggle with loss aversion, a bias that makes them more uncomfortable with losses than with equivalent gains. Investors fear they will regret not changing asset managers who are underperforming in the short term without looking at the facts and remaining emotionally neutral when making decisions, exacerbating the problem.
Controlling biases and limiting short-term decision-making, according to historical evidence, reduces the risk of permanent capital destruction by staying invested and maintaining a long-term focus. When investors control their biases and limit their short-term decision-making, the likelihood of long-term investment success increases.
“Stocks are a safe bet, but only if you stay invested long enough to ride out the corrections,” famous investor Peter Lynch once said. This applies to both the stock market and asset managers. We maintain trust by investing time with clients, helping them stick to their financial plans and celebrating with them when they reach their long-term financial goals.
Finally, investors must have confidence in their asset managers to invest their assets prudently and for the long term. Investors should not focus on short-term market fluctuations or performance differences, but have confidence in the investment strategies they have chosen. Limiting your thinking to the present moment and controlling biases is critical to long-term investment success, and trusting your asset manager is critical to achieving your long-term financial goals.
