What do investing and getting ‘beach’ ready have in common? More than you may think! “Dedication, perseverance and discipline are as key to investment success as they are to summer confidence,” says Jac de Wet, National Head of Sales at PSG Wealth. “The most important realisation, however, is that it is a lifestyle decision – not a once-off effort.” It takes dedicated training to reach exercise goals and there are three key steps to do so that can be applied to investing as well.
Understand behavioural effects
You’re unlikely to blame your running shoes if you fall short of your Comrades dream after not training for six months. Yet investors are quick to blame the markets, their adviser or the economy when it comes to not reaching their financial goals and ignore the impact of their own decisions and behaviour. Canadian research company Dalbar has conducted research on the performance of investors relative to the S&P 500 Index for more than 30 years. They’ve found that the average investor’s portfolio only performs around half as well as the market average.
The gap between market performance and investor returns is due to destructive investor behaviour. This includes poorly timed switches between investments and poor capital allocation. So, understand that you may very well be your own worst enemy when it comes to your investments. Understand that emotional switching in response to market movements and news headlines leads to poor investment allocation decisions. Commit to a cool head and rational research under the guidance of an experienced investment coach.
Have realistic expectations
You cannot go to the gym once a month, skip exercise during winter, and expect to be on top form. You need to train often, consistently, and over prolonged periods of time. Nor can you focus on one body part and expect your entire body to be transformed. In the same way, an investment portfolio should be viewed holistically, well diversified and matched to your specific goals and needs.
Take a long-term view – remembering that a period of three or four years is not long-term, but 10 to 15 years is. Aim for a resilient portfolio that can deliver the expected return you require to achieve your goals, keeping the impact of inflation in mind as well.
Actively plan with a clear strategy and goal
While some may argue that any exercise is better than none, the reality is that your exercise plans need to match your fitness goals. Randomly exercising on the first machine you set your eyes on in the gym is sure to disappoint you in the end. This is why having a goal and a trainer – or a financial adviser when investing – can help. Your plan will require upfront analysis, regular reviews, and tweaks along the way – and a financial planner can be your personal trainer or coach to help ensure you reach your goals.
“Fitness does not happen overnight. Just as it takes a year-round effort to be fit come summer, growing and maintaining your wealth is also a long-term game and it’s up to you to play it well,” de Wet concludes.