Several significant studies on individual investors have returned the same findings: human behavior is routinely the worst enemy of our investment portfolios. To be more precise, these studies show that investors significantly underperform the markets they invest in due, in large part, to their inability to control certain behaviors.
We call the difference between the market’s investment return and an investor’s actual return “The Behavior Gap.”1 Instead of following a disciplined, long-term strategy—one modeled on a well-diversified portfolio built to deal with the market’s natural ups and downs over time—individual investors tend to make two crucial behavioral mistakes:
1. They try to time the market
2. They rely too heavily on specific stocks or sectors, exposing themselves to undue risk
Find out more about these two behavioral issues and how we help our clients avoid them.
Illustrations presented through license from author Carl Richards of BehaviorGap.com.