Maximizing investment opportunities

Since the founding of our company one of our catch phrases has been “Getting in the way of success”. Just what does that mean?

Investment performance and investor performance are, unfortunately, often very different. Financial investments and human nature aren’t always very compatible with each other. Certain things never change and largely apply to participants all along the spectrum of education and income. People want to buy into investments after they have gone up. There is a sense that “this one is working” so I’ll put my money there. When good investments are on sale – meaning down 20% or 30% fear sets in and participants often sell or are afraid to buy. Curiously, this is often the exact opposite of the same person’s behavior where they buying a car or something at the grocery store. Typically in that setting the idea is to find the best value. How many people would buy that dress it they marked it up 100% in price?

Part of this can be addressed through education and experience but the fear and reaction to loss is always more powerful than the pleasure of an equivalent gain. The pain of being down 25% is always stronger than the pleasure of being up 25%. “Getting in the way of success” is about choosing investment options for the plan that will minimize this behavior primarily by choosing core funds that are easier to hold onto when markets turn for the worse – which happens quite often.

While one company might have more experienced investors making a developing markets fund or other fund that would be prone to large swings in volatility and performance appropriate for that plan this same fund is exactly the type of fund that sucks less experienced people in at the top only to provide a fast ride to the bottom. Over time the fund might well perform spectacularly but if it also has a propensity to go up and down by 50% along the road to those returns few participants are likely to stick around and actually achieve those results.

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