Want to improve your returns? Keep your finger off the button.

It’s a new year and president, and with that comes uncertainty and many opinions about the direction of the investment markets. What’s key to remember is that uncertainty is nothing new. Studies suggest that despite major political and economic events that can impact returns in unpredictable ways in the short-run, it’s better to keep stay away from the panic button if you want better long-term results.

A recently updated Dalbar, Inc. study proves this point, showing 20-year annualized results of the markets vs. investors:
S&P 500 index: 9.9%. Average stock mutual fund investor: 5.2%. Difference per year -4.7% (ouch!).
Barclays Aggregate Bond Index: 6.2%. Average bond fund investor: 0.8%. Difference per year: -5.4% (ouch!!).

This study concluded yet again that investment results are much more heavily affected by investor behavior (i.e. emotional investing… fear and over-confidence) than the performance of the markets themselves. Panic-selling when you are worried (i.e. using the fight or flight part of the brain), under-diversification, following the pack, and making decisions based on short-term news (whether real or non-vetted), hurts your returns.

More often than not, following your WealthStep Aim>Save>Invest>Spend strategy, which relies on a long-term process and not fleeting events, will improve your outcome. Focus on things you can control… Aim>Save>Invest>Spend. News/events you cannot. Your investment and retirement readiness results over time will make it clear whether you focused on the former or the latter.