I’ve said it a million times but I will say it again. Having any investment discipline is better than having none at all.
The average individual investor follows trends. Which means they are often selling at the bottom and buying near the top. A 2010 study by Dalbar revealed that the average equity fund investor underperformed the Standard & Poor’s 500 by a whopping 5.31% annualized over the previous 20 years. That’s real money.
In my book “The Women’s Guide to Successful Investing,” I devote an entire chapter to developing an investment discipline that meets your risk tolerance and personality biases. For example, I tend to be a late adapter – I have yet to establish a Netflix account – and I don’t like to pay up for stocks. These traits are consistent with the value investing style. Growth investors are early adapters and are proficient in the latest technologies and aware of the most current trends; they tend to be comfortable running with the fast crowd. Value investors are more inclined to move against the crowd.
Of course, there are variations of the two disciplines I describe, but the point is: Both disciplines are valid. Both shine during different stages in economic cycles. And both will generate solid returns if investors remain committed to their chosen approach. Staying the course is key, yet the research shows that most investors give up right when they should consider doubling down.