Investing’s Number One Rule: Don’t Trade Too Much

Want to succeed at investing? Don’t trade too much. Tune out the financial news, don’t listen to your neighbor or co-worker, and ignore economic trends. Try to avoid thinking about current political and economic worries that can send you off the long-term investment rails.

Unfortunately, most investors do not heed this advice. Despite an 11.1 percent average annual gain in big U.S. stocks over the past 30 years, the average investor in U.S. stock mutual funds has earned a little less than 4 percent per year, according to statistics compiled by the research company Dalbar.

While mutual fund fees and trading fees account for some of that underperformance, the lion’s share most likely was caused by bad trading decisions made by investors who become fearful when markets drop and greedy when they rise. Avoid this herd mentality and stick to your diversified portfolio if you want to beat the crowd.

Richard Schroeder CFP®, March 2, 2015


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