Pursuing a Better Investment Experience
Embrace Market Pricing - The market is an effective information-processing machine. Each day, the world equity markets process billions of dollars in trades between buyers and sellers—and the real-time information they bring helps set prices.
Don't Try to Outguess the Market - The market’s pricing power works against mutual fund managers who try to outperform through stock picking or market timing. As evidence, only 14% of US equity mutual funds and 13% of fixed income funds have survived and outperformed their benchmarks over the past 15 years.
Resist Chasing Past Performance - Some investors select mutual funds based on their past returns. Yet, past performance offers little insight into a fund’s future returns. For example, most funds in the top quartile (25%) of previous three-year returns did not maintain a top-quartile ranking in the following three years.
Let Markets Work For You - The financial markets have rewarded long-term investors. People expect a positive return on the capital they supply, and historically, the equity and bond markets have provided growth of wealth that has more than offset inflation.
Consider the Drivers of Returns - Academic research has identified these equity and fixed income dimensions, which point to differences in expected returns. Investors can pursue higher expected returns by structuring their portfolio around these dimensions.
DIMENSIONS OF EXPECTED RETURNS
Equities
Market (Equity premiums - stocks vs. bonds)
Company Size (Small cap premium - small vs. large companies)
Relative Size (Value premium - value vs. growth companies)
Profitability (Profitability premium - high vs. low value comparison)
Fixed Income
Term (Term premium - longer vs. shorter maturity bonds)
Credit (Credit premium - lower vs. higher credit quality bonds)
Practice Smart Diversification Holding securities across many market segments can help manage overall risk. But diversifying within your home market may not be enough. Global diversification can broaden your investment universe.
Avoid Market Timing - You never know which market segments will outperform from year to year. By holding a globally diversified portfolio, investors are well positioned to seek returns wherever they occur.
Manage Your Emotions - Many people struggle to separate their emotions from investing. Markets go up and down. Reacting to current market conditions may lead to making poor investment decisions.
Look Beyond the Headlines - Daily market news and commentary can challenge your investment discipline. Some messages stir anxiety about the future, while others tempt you to chase the latest investment fad. When headlines unsettle you, consider the source and maintain a long-term perspective.
Focus on What You Can Control - Lean on our expertise and guidance to help you focus on actions that add value.
This can lead to a better investment experience.