The Unexpected Way You’re Timing the Market, Ep #177

You don’t think you’re timing the market, but guess what? You probably are. In this episode of Best in Wealth, I’ll talk about what the average investor looks like and why you don’t want to fall into that category. I’ll share why I think you’re timing the market and what you should be doing instead. Check it out![bctt tweet="In this episode of Best in Wealth, I share the unexpected way you’re timing the market—and what to do instead. #wealth #retirement #investing #PersonalFinance #FinancialPlanning #RetirementPlanning #WealthManagement" username=""]Outline of This Episode[1:32] I take every chance I can get to love on my wife[5:24] What Dalbar studies say about the average investor[8:30] Why the average investor doesn’t achieve the benchmark[13:35] How the major asset classes performed in 2020[17:39] How the asset classes performed in quarter 1 of 2021[20:22] If you shouldn’t make unplanned adjustments—what DO you do?What Dalbar studies say about the average investorDalbar researches all of the mutual funds that exist in the world. They can tell how the average investor compares to the performance of the overall market. Dalbar is the financial community's leading independent expert for these types of evaluations. It launched in 1976 and has earned a lot of recognition. The study that covered the first 6 months of 2021 says that the average investor does worse than the benchmark. Why? That’s what we need to figure out. You don’t want to be on the losing end. If you’re going to take a risk, you want to get what you deserve from the asset class. You want the reward.Why the average person underperforms the benchmarkPart of the reason you’ll never achieve the benchmark is because ETFs and mutual funds have an expense ratio. After that expense, you want to do as well as the benchmark—or beat it. You want to reach financial independence as quickly as possible.Another reason that people tend to underperform the benchmark is because they try to time the market. They sell when the market drops and sit on the sidelines until things are “better.”But it’s not just that. I think it’s more subtle.Most of the people I talk to claim they don’t time the market. They say it over and over. But it’s not just getting all the way in or all the way out of the market. The real problem is that you don’t have an investment plan. You might have a great idea in your head. But you don’t get a documented plan down on paper.Instead, you do a lot of reading and research and you pick your investments. You throw 50% in one thing, 25% in another, and so on. You make your selections off the yearly averages and you invest. Or you look at certain asset classes that are doing well and invest in them. Maybe periodically you see how things have changed and you make adjustments. But if you want to be a successful investor, you need to be methodical. You need a plan. This is what separates you from the average investor.[bctt tweet="Why does the average person underperform the benchmark? I share some research—and my thoughts—in this episode of Best in Wealth! #wealth #retirement #investing #PersonalFinance #FinancialPlanning #RetirementPlanning #WealthManagement" username=""]What asset class performance tells you about your investment strategyPretend for a moment that it’s the 4th quarter of 2020. The S&P 500 averages 10% per year looking back 95 years. In the last 10 years, they averaged around 14% per year. Why was it on a tear? Facebook, Apple, Google, Amazon, Microsoft, etc. So a lot of people tilt their portfolios toward the S&P 500.In the last quarter of 2020, the S&P 500 finished up 12.15%. Not bad, right? Except large-value did a lot better, ending the year up 16.25%. Small finished up 31.27%. Small value did even better, ending...