We are our own worst enemy when it comes to investing.

We are becoming more familiar with certain investment themes. The greatest destroyer of wealth is inflation. If it’s too good to be true, it usually is. Plan for a low-return environment and to live longer. There’s room for passive and active managers. High fees are a killer but cheap isn’t necessarily good value. Understand the difference between independent, fee-based advisors and those driven solely by commission. Robo-advisors may have a place but so too do human professionals.

Past performance is not a good indicator of future performance. And so we could go on. Such pearls of investment wisdom can be used in support of a particular service or product offering, well supported academically and technically with statistics.

Warren Buffett reminds us that ‘time in the market is more important than timing the market’. We look for rational behaviour in the drivers of market forces, whether it’s economics or politics – Brexit, the Greek bailout, Trump vs Clinton, or even natural disasters. Such shocks are routine and arguably no different to those of the Great Depression and two world wars. The wisest course of action would be not to try to time these events but rather to construct investment portfolios that weather them well.

When it comes to product and investment structures, there’s an endless array of choice, and new options being offered every day. The wrappers include retirement annuities, living annuities, endowments and mutual funds (unit trusts) just for starters. On mutual funds alone, there are over 9 600 variations in the US. And then there are all the underlying asset classes with innumerable variations from the traditional equity, property, cash and bonds to sophisticated index trackers and derivatives. In addition, you can overlay these with different styles of asset management: active, passive, deep value, quants, GARP, and so it goes on.

It’s a minefield of education, choice and noise; all very attractively packaged, well branded, and accompanied by a compelling sales proposition.

DALBAR’s 2016 Qualitative Analysis of Investor Behavior (QAIB) reinforces the fact that over a research period dating back 30 years, ‘no matter what the state of the Mutual Fund industry, boom or bust, investment results are more dependent on investor behavior than on fund performance’.

Those investors who held onto their investments were more successful than those who tried to time the market. In 2015, over a 20-year annualised period, the S&P 500 index returned 8,2% while the average equity mutual fund investor earned 4,7% – 43% less than the index, and ignore the consequences of this shortfall being compounded. Their analysis consistently shows that investor behaviour is the number one cause of underperformance.


  • Get professional advice to develop your plan, help you to sort through the ’noise’ and protect you against yourself in times of fear and greed.
  • Have a plan with clearly defined wealth objectives and clear milestones, including liquidity for contingencies and insurance against unforeseen risk events. Plan for your estate. Plan your tax. Then choose the wrapper and product and best suits your plans and aspirations.
  • Avoid following the herd and trying to time the markets.
  • Do not be seduced by ‘get rich quick’ offers: if it’s too good to be true, it usually is.
  • Your instincts aren’t always right.

Author: Mike Lledo CA(SA) is New Business Initiative at Citadel Wealth Management