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Maintaining a long-term investment strategy is easier said than done. When faced with disappointing short-term results, most investors tend to engage in unhealthy investor behavior and may abandon their long-term investment strategies, chase the hot performing categories or try to time the market in some fashion.
The impact of such unhealthy investor behavior is illustrated strikingly in a recent study (Quantitative Analysis of Investor Behavior, published in 2007 by Dalbar, Inc.). According to the study, while the average stock fund delivered an average annual return of 11.3% per year from 1987 to 2006, the average stock fund investor received an average annualized return of only 4.3% per year.
While this particular study uses mutual funds and mutual fund investors as the basis for its conclusions, we believe Dalbar’s findings in this instance apply more generally to the behavior of other investors as well, including institutions.
At GPS Investment Advisors we believe successful investing requires process and discipline. For each individual or employer client, GPS Investment Advisors seeks to establish and maintain a solid investment process and discipline based on capital markets history, widely accepted statistical studies and time-tested investment strategies. A well thought out, written plan based on each investor’s time horizon, risk tolerance and objectives provide the foundation for this process and discipline. Because circumstances change, regular reviews are included as part of the process.
Emotion, fear, greed and short sightedness have hindered many individual and institutional investors from selecting and holding the appropriate investments and achieving solid, long-term returns. We believe in the benefits of asset allocation and diversification that underpin Modern Portfolio Theory and the Prudent Investor Rule. We want clients to have a proper understanding of their portfolio and plan so they are comfortable staying the course or approving the necessary adjustments during times of volatility or uncertainty in the market.
A key to developing a counter-emotional approach towards investing is having an investment strategy. Most successful long-term investors, and our clients, have a “roadmap” to help them stay focused, consisting of the following components:
- A written investment policy
- An asset allocation strategy
- Rigorous manager selection and evaluation
- Ongoing account monitoring and rebalancing
Institutional investors use strategies similar to this four-step process more often than individual investors. Such a disciplined approach to investing may be one of the reasons why the average institutional investor outperformed the average individual investor in a study cited by Davis Advisors, LLC (The Successful Investor, 2007).
Securities solely offered by Securities Licensed Representatives of NFP Securities, Inc. (NFPSI), a Broker/Dealer, member FINRA/SIPC. Investment Advisory Services solely offered by Investment Advisory Representatives of NFPSI, a Federally Registered Investment Advisor. NFPSI has no ownership interest in GPS Investment Advisors. NFPSI and GPS do not provide tax or legal advice.
This site is published for residents of the United States only. Registered representatives and investment advisor representatives of NFP Securities, Inc. may only conduct business with residents of the states and jurisdictions in which they are properly registered. Therefore, a response to a request for information may be delayed. Not all of the products and services referenced on this site are available in every state and through every representative or advisor listed. For additional information, please contact NFP Securities, Inc. Compliance Department at 512.697.6000.
