It’s Time For Professional Financial Help

Do you find yourself making off-the-cuff decisions, being prone to bias and getting swayed by market moves? Do you find that your investment portfolio significantly underperformed as compared to market benchmarks? It’s Time For Professional Financial Help.


Introduction to Professional Financial Help

We find that the biggest reason for underperformance by investors who try to manage their own investments is psychology. Behavioral biases that lead to poor investment decision-making is the single largest contributor to underperformance over time.

The biggest problems for the individual investor are what’s known as the “herding effect” and “loss aversion.” These two behaviors tend to function together compounding the issues of investor mistakes over time. As markets are rising, individuals are lead to believe that the current price trend will continue to last for an indefinite period. The longer the rising trend lasts, the easier it is to believe, until the last of “holdouts” finally “buys in” as the financial markets evolve into a “euphoric state.”

As the markets decline, there is a slow realization that “this decline” is something more than a “buy the dip” opportunity. As losses mount, the anxiety of loss begins to mount until individuals seek to “avoid further loss” by selling.

In the end, we are just human. Despite the best of our intentions, it is nearly impossible for the individual investor to be devoid of the emotional biases that inevitably lead to poor investment decision-making over time. This is why Apex has strict investment disciplines that we follow to reduce the emotional side of investment decisions.

Researchers have found signs of all three behavioral traits in new studies that offer fresh evidence that investors can be their own worst enemies. Such habits can be hard to break and, often times, costly, as experts in the field of behavioral finance have shown.

Sure, many individual investors believe they are capable of handling their own finances, but are they really prepared to weather the market – and emotional – highs and lows?

Most people are too busy with their own careers and families and commitments to dedicate the time necessary to focus on preparing, planning, implementing, reviewing and adjusting their financial affairs.

Asset Allocation

Have you engaged in any financial planning based on a long-term investment strategy? Do you have a cohesive plan that you follow?

One of the hardest disciplines for the individual investor to follow is the idea of diversification and asset allocation. Typically, the individual investor tends to “ride the wave” of a hot stock rather than take a thoughtful and disciplined approach of regularly rebalancing to match a defined asset allocation consisting of multiple investments in selected companies and/or sectors.

The whole purpose of asset allocation is somewhat of a protectionist strategy and requires an active approach to managing your portfolio. Will a well-diversified portfolio always perform better than an equity index? Not necessarily. However, the goal of a well-diversified portfolio is to participate in the performance of a number of selected asset classes, while limiting

For example where the S&P 500 was down 37% in 2008, a well-diversified portfolio consisting of investments in municipal bonds, equities, commodities, real estate, and treasuries may only be down 20-25%. Yes, the portfolio would still suffer a loss, but not as devastating a loss had it been invested in all equities.

Investing for long-term growth potential and utilizing a broader mix of assets is a strategy that offers, in our opinion, the best approach – yet this is not usually followed by the individual investor. A well-diversified portfolio may provide a smoother ride over the long term.

Tax Planning

Another thing to consider for the individual investor – how tax-efficient is your investment portfolio?

If your portfolio triggered a hefty 2014 tax bill, forget trying to do better over the next year – and instead think about the next few decades. Average individual investors, and even some financial “experts,” often focus on short-term tax moves, such as selling losing stocks each year and year-end. This practice may be good in certain situations and in some years, but as a practice to be executed every year, we believe there are much more tax-efficient ways to manage a portfolio.

Your Portfolio

Trying to time the market is extremely difficult to do consistently. Market lows often result in emotional decision-making by individual investors. Investing for the long term while managing volatility can lead to a much better outcome.

Ultimately, you should probably look to reconsider your investment options, especially if any of these two scenarios are true:

  • Your current advisor or broker is incentivized to trade your account on a frequent basis
  • Your current advisor makes portfolio adjustments without a strategy or explanation.

We believe that developing a comprehensive financial plan can bring with it a lot of confidence and peace of mind and serve as a framework for pursuing your financial future. Complications will arise and plans will have to change, especially as you add complexity (home, children, additional insurance, college costs). Helping you build that initial plan and/or deal with those inevitable complexities are challenges that often call for professional financial help.


Not an Apex Client? Maybe It’s Time for Professional Financial Help.

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