Diversify + Hold = Long-Term Growth

Jun 08, 2018 | Dan Rudisuela


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Just like "Eat Well + Exercise = Long-Term Health" this simple advice is often hard to follow.

The plan is deceptively simple; buy sound, diversified investments and then let them do their thing. However, as a recent report from DALBAR (a financial services market research firm) points out, we really can be our own worst enemies when it comes to investing and following this advice is much easier said than done.

Even if you are not a charts and numbers person, the gist of the following graph is clear:

Volatility reduces drastically over time. The moral of the story is then to look for companies that you believe you will want to hold long-term. Since most of us invest to satisfy our long-term goals this should be easy but guess how long the average equity mutual fund investor stays invested for? The answer is 3.6 years.

Usually when investors chose to sell an investment, they are not taking their cash out of the market they are switching to another investment and trying to time the market. According to the research, investors are really bad at that as well:

For the full article please click here and for more on the influence of behavioral finance click here for another recent post on the subject.