The path to success in many disciplines is determined by intense focus, exhaustive research, ongoing monitoring and taking action.
Yet when it comes to investing, the irony is that approach needs to be flipped on its head.
The solution might be found in the Chinese philosophy of Taoism and its principle of ‘Wu Wei’, which when translated to means ‘do nothing’.
Students of Taoism are taught to let go of factors they can’t control.
Remember, the impact of constantly eyeing a portfolio, watching the business channel, reading the daily finance section and trawling the internet for the next hot investment will be negligible.
Often because investors are focussing on (and reacting to) yesterday’s news and this can wreak havoc on an impatient mind.
The focus of the financial media is encouraging investors to ‘do something’ and ongoing research tells us ‘doing something’ often causes most of their problems.
Each year US research firm Dalbar releases their Quantitative Analysis of Investor Behaviour and it consistently reveals the benefit of doing nothing.
While the S&P 500 share Index returned an annualised 8.21% over the past 20 years, the average equity fund investor only returned 4.25%.
For investors in fixed income the result was even worse.
While Barclay’s Aggregate Bond Index returned an annualised 6.34% over 20 years, the average fixed income investor only returned 0.98%.
The question is why didn’t equity and fixed income investors achieve those much higher returns that the market provided?
The clue is in the length of time investors hold their investments.
For equity fund investors the average holding time is 3.3 years, while for fixed income funds the average is 3.1 years.
Suggesting many investors are impatient, have overly high expectations and don’t have clearly defined goals.
Making them susceptible to the financial media’s encouragement to ‘do something’ and continually look for greener grass.
Long term investment success never occurs in three years, so investors would do well to remind themselves of some ancient Chinese wisdom and ‘Wu Wei’ when feeling impatient.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL/ACL 224543, www.mfg.com.au This information is general in nature and readers should seek professional advice specific to their circumstances. Looking for the top financial adviser in Australia? We think we’re it.
