Investors Have Two Choices: Keep Changing Investments or Transform As Investors

Keep Changing Investments or 

Transform As Investors

                 by: Brendan Magee

The Dalbar Corporation's Quantitative Analysis of Investor Behavior Report for 2015 reveals that investor's retention rate for their investments is roughly three and a half to four years. What that means is that investors, on average, are making changes to their portfolios every three and a half to four years. Some may make changes more frequently and others a little less frequently, but investors are making changes to their investments as a means to addressing their investing problems.

The Q.A.I.B. Report also shows that investor's returns are lagging way below the benchmarks. It's as if the going hourly rate was $15 per hour and the average investor was actually earning $8 per hour. To make it even more absurd imagine that the bosses (the stock market) are more than willing to pay the $15, but the employee is sabotaging their own take home pay. In the real world you couldn't imagine someone forfeiting what they are legally entitled to, but that is exactly what is happening to investors.

So let's look at the options available on how to fix this problem in a real world situation. A middle aged couple meets with me to find out why their investments over the past seven years has earned nothing. The choices being made available to them were Roth IRA's by adviser Y and the opportunity to step back and take a look at how it was they came to say yes to their current adviser and make nothing in returns over the past seven years so they wouldn't make that same mistake (or a worse mistake in the future) again.

Their choice was to make a change to their investments and go with a Roth IRA, not step back and take a look at themselves and their decision making process. It's kind of like a golfer who isn't playing as well as they think they should. You can by a new driver, putter, or even a new set of golf clubs or you can try and figure out if its your swing (you the golfer that is out of sorts).

There are two sayings that my friends at Landmark Education introduced me to and I think they are  appropriate to the couple I was talking to and the overwhelming majority of investors, "The more things change, the more they stay the same."

The Dalbar Study dates back to 1985 and has been repeated every year since. The conclusions have always been the same. "Investors are drastically under performing the stock market's rate of return and their results are more a byproduct of their behavior. They are constantly doing the wrong thing at the wrong time. They are making changes to their portfolios (moving their money from one investment to the other). We are seeing that same scenario play out with the couple I had met with. So in reality with all the changes being made to peoples portfolios, it is more of the same and nothing is changing, especially investor returns. (By the way, it is possible that changes are being made to your portfolio without you even being made aware of it)

The second saying that I got from Landmark Education is, "The more your resist, the more the problem persists." I am not sure if it is resisting or not, but the problems of investors continues to persist. The reason is the problems that are haunting investors cannot be solved by a product of any kind. They can only be fixed by the investors themselves, and before they can be fixed they need to be acknowledged.

Take the couple I was speaking with. I was offering them the opportunity to help them see, not so much, what their current brokerage firm was doing to them. Rather, I was trying to give them an opportunity to see how it was they came to say yes to allowing someone to manage their money in a way that was a total waste of their time and money. This would not be an opportunity to make a change to their investments so much as it was an opportunity to transform as investors.

By transform, I meant that who they are as investors and how the process of investing occurs to them changes in a powerful way forever. This doesn't take place until they see/acknowledge something about themselves as investors that they had previously been unable (maybe unwilling) to see/acknowledge. This is what a breakthrough is all about and it doesn't come from a product of any kind. It occurs at the mind, body, and soul level. It comes when you are asked the right questions and take the time to answer them properly.

Now there is the problem for most people. Changes to your investments can be made in a nanosecond. With E Trade and on-line trading you can scratch your "I've got to make a change itch" over lunch, and you do not have to ever acknowledge how responsible you are for the investment problems you are experiencing.

Transformation takes some time and cannot be rushed if you are going to do it right. As opposed to a trade in two seconds, you are actually going to have to talk to someone and you might have to acknowledge that your decisions were based on myths and misinformation that you couldn't see were misleading. You might feel a little blow to your ego. You might have to acknowledge that you are at risk in making those same kind of bad decisions in the future and need help. You might have to acknowledge that the biggest threat to your financial security is your own behavior and you need help managing you. You might have to acknowledge somethings about yourself that are not too pleasant. The result, you with more peace of mind about your investments and financial security than you ever thought possible.

Acknowledgement has done wonders for those seeking sobriety. Having witnessed many A.A. meeting, I can tell you that every meeting is started with each member acknowledging they are an alcoholic. Key to the success that A.A. has helped people achieve is the opportunity for people to stop living in denial about their drinking problem. It's not a change that is at the root of their sobriety. It is acknowledgement and rather than make changes, I think investors would do a lot better and transform their lives through acknowledgement.

Brendan Magee is the founder and president of Inevitable Wealth Coaching. With questions, comments, or feedback, please e-mail brendan@coachgee.com or call 610-446-4322.