The Truth? You Can't Handle the Truth!

When reflecting on the equity markets, I couldn't help but use the famous line from Jack Nicholson's character, Colonel Jessup, in the classic movie A Few Good Men. Colonel Jessup was referring to the fact that the military is a tough place for tough soldiers and most of us civilians would have a hard time understanding what it takes to make it in that environment. The "truth" was that sometimes things get a bit out of hand and people get hurt.

The financial industry is a lot like Colonel Jessup, trying to cover up the fact that in the financial markets sometimes things get a bit out of hand and people (investors) get hurt. Having been in the financial industry for nearly a decade, I can honestly say that equity markets can be every bit as dangerous as the military. And the real truth is that most people should not be in equity markets.

Let me get this out - I am not a cynic. But the American people have been misled for nearly 50 years by the sales tactics of the financial industry. Mutual fund companies are some of the worst entities on the planet for hiding the truth that the stock market really doesn't work well for the average investor. How do I know? Each year Dalbar, a Boston based investment research company, puts out the QAIB (Qualitative Analysis of Investor Behavior) which tells us how the investor fairs versus how the investment fairs. The results speak for themselves.

While the average equity mutual fund has averaged about 10.7% over a twenty year period, the average mutual fund investor has earned less than 3.7%. The investor return barely kept up with inflation, which averaged 3.5%. But this is before taxes! After taxes the investor did not even keep up with inflation despite the "market" average of nearly 11%!

Why does this happen? Can you handle the truth?! It happens because we are human. Warren Buffet talks about Fear and Greed, but it is more simple than that. We humans get excited about opportunities, but we are really more driven by the possibility of loss. Thousands of studies have been done on the subject, and they have a very similar outcome - volatility and loss are bigger motivators than potential gains.

Look for options to secure your savings and beat the average investor returns by avoiding volatility. You will be a happier person and there is a higher chance you will be a wealthier person.