Have you ever wondered what is the biggest risk to your investments? Its you! I know this sounds harsh, contradictory, or straight up incorrect, but stick with me and I’ll prove to you that it is true.  Once we accept this truth within the investment world, we can better mitigate this risk.

How it Plays Out

Here is an example of how it could play out.  You tailor fit a terrific portfolio of stocks and bonds to meet your goals and risk tolerance.  Maybe something similar to what I’ve outlined in my investment plan for 2021.   You fund the account, pull the trigger, and execute the trades.  You’re all good to go.  Then something happens that makes you second guess you actions; maybe a month or two goes by and you read an article about how every portfolio should allocate 5-10% to silver and diamonds, and you realize you have zero allocated to this idea.  Or maybe you hear that real estate is a solid never lose investment and again, you have nothing allocated to real estate.  Or worse yet fears abound about an upcoming stock market crash and you feel really exposed and fear starts to creep into your mind.

Taking action on these ideas is born out of fear and discredits the prior work and diligence put into your portfolio before.  This constant moving in and out of the market, shifting allocations around, and chasing the new idea is counter productive.  Worse, it can lead to terrible results and missing out on great returns you were previously positioned to capture if you had just stuck to your plan.

You are the Biggest Risk

You my friend are the biggest risk to your portfolio.  Not the rumor on hyper-inflation, or the need to shift some stock to real estate; but the fear you feel and the potential action you’ll take to assuage that fear.  That is your biggest risk.

Take Some Credit

Give yourself some credit on the work you did researching your original asset allocation – you will likely do better long term sticking to your guns and your plan than making small adjustments and changes along the way.  You will do better sticking to your plan than doing wholesale changes every 6-12 months to suit the newest trend.  This will most certainly lead to a constant whipsaw experience, frustration, and selling low after you bought at the high.

Proof is in the Results

Consider the following research done by Fidelity Investments to determine their best investors from 2003 to 2013.  The study is relevant because if they can determine who their best investors are, then maybe they can modify and adjust their plans and allocation models to better suit the needs of their clients and ultimately achieve better results.  Their two best investor types during this period were the following:

1. Dead Clients
2. Forgetful Clients

Clients who had died, and the money was not being touched or adjusted while their estate was being settled over a number of years, did the absolute best.  There was no temptation to change the asset model, sell stocks that were under performing, or chase the next hot tip. 

“Fidelity had done a study as to which accounts had done the best at Fidelity. And what they found was…”

 

“They were dead.”

Next up were those clients who had forgot they even had an account did the next best for many of the same reasons. 

The common trait between these two groups is the lack of action or churn within the portfolio.  Decisions that were made years ago were left to carry out and execute per the original plan.  These accounts did the best.

You can read more about this report here