Am I better off picking my own funds?

Category: Investment

Morningstar has published updated research as part of its annual Mind The Gap study on how much of market returns US investors get.

The headline is those investors get 1.7% less than they should.

What is the reason behind the difference?

The explanation the report gives for this is that the investors mistime their buys and sells. A lot of this can be explained by investors buying high and selling low. This is usually due to the two true enemies of long-term investment, fear and greed.

We have previously covered how the way our brains are wired does not help us when making financial decisions. This study shows the consequences of this. Whilst this is a US study, I do not believe we are that far behind. Just look at how Hargreaves Lansdown reported they had to deal with much higher levels of trading when markets were falling during Covid.

What can we do?

One of the interesting findings in the report was that investors into funds that hold a wide range of asset classes (Equities Bonds etc.) had a much-reduced performance gap. With these funds, the number of decisions an investor might have to make should be lower. The harsh truth is the more the average investor gets involved with selecting their investments the worse they do.

One of our main roles is to help our clients make good financial decisions. One of the ways we can do this is by having a pre-constructed set of portfolios that our clients can invest in. This reduces the number of decisions they need to make. We are then by their side when they come to make these decisions, giving them the best chance of getting them right.

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