A recent study by JP Morgan AM, published in the quarterly market guide, Showed, that the average investor in the United States over the past 20 years earned no more 2,9% per annum. Let's figure it out, what caused such unimpressive results and is there any way to improve them, and much. Spoiler - yes. Simple and complex at the same time, and sometimes unbearable for most.
Just above inflation
According to the conclusions of the experts, the average US investor struggled to beat inflation. At the same time, there were enough opportunities in the market., to achieve the best result, even for beginners. The most profitable in recent 20 years of investment in REIT's, emerging markets and small cap stocks. The worst performing commodity markets (-0,5%).
Diagram, presented below, especially relevant now, when the market is experiencing a large influx of new investors. Person, first time in the world of investment, often completely unprepared for that, what situations can happen.
Why?
The reasons for this poor result have long been known., but, seem to be, for the latest 20 nothing has changed for years. Inflated expectations, overestimating one's strength, underestimation of risks, greed, lack of strategy and self-discipline - this is what leads to a disastrous result. Evidence that, that the average investor tends to make bad decisions in an attempt to speculate, is not only on the stock market and not only in the last 20 years.
For clarity, let's analyze that, how did the individual speculators behave? (Small Spec) in the markets of futures contracts - a graphical reflection of the effectiveness of their actions will be very indicative. For example, let's take the British pound futures and see, how the speculators acted. After analyzing the period, up to 2003 G., Find, that even then the situation was similar. The market was unfolding at that moment, when Small Spec persistently increased or reduced its positions to a minimum.
Current economic situation and low rates on deposits like in the USA, as well as in Russia it is required to learn how to make sound investment decisions. Otherwise savings, received on bank deposit, will not be enough, to get around the recently rapidly growing “inflationary tax».
General rules have long been known: learn how to set investment goals first, make a plan to achieve them, implement it with proven tools. And remember, that markets don't always go up.
The most (not)easy way
For those, who took the first difficult step and realized the need for reasonable investment, there is an easy way to escape from the crowd of "unlucky". It is simple in form, but for the majority it is extremely difficult to implement. Almost everyone knows about it, but stubbornly does not use - otherwise the statistics would be different.
Having done research, we can see, that a long-term portfolio of stocks and bonds, composed in any proportion, could help the average investor to circumvent the results at least two to three times in profitability, calculated by JP Morgan AM.
Everyone can decide for themselves, how much potential risk is willing to take and make a portfolio with a certain proportion of stocks and bonds. In the US market, the most rational in terms of risk / return is the ratio 30/70, with a preponderance of bonds.
Investors, which were exclusively focused on bonds, it is worth paying attention to, that adding 10-20% of shares to the portfolio not only increased the profitability, but also reduced the maximum drawdown. And for investors, ignoring bonds, need to realize, that buying only shares leads to a disproportionate increase in risk in relation to the potential return.
The mistake of many investors in the past 20 years - underestimating the advantage of owning bonds. That, how important it is to add bonds to a portfolio, demonstrates schedule ratios of various bond indices and changes in their yield during crisis periods.
A source: realinvestmentadvice
A source: realinvestmentadvice
so, what should investors do
If trading in the stock market is not your profession and you do not have the time and qualifications to pay full attention to research and analysis, then using the model 30/70 for basic strategy formation can be one of the best solutions.
Building a portfolio of stocks and bonds is just the beginning of building a robust portfolio. As we found out earlier, and buying "boring" stocks can bring the investor a good return with less risk.
Can't do without the inclusion of alternative asset classes: real estate, raw or gold. Adding assets to the portfolio, negatively correlated, with the same level of risk, you can get a higher return. Strategies are the most valuable, able to limit risks and preserve capital during a crisis. And in a growing market, many can earn.
Ray Dalio in his book Principles: Life and work "showed, how important is diversification, calling it the "Holy Grail of Investing". With a decrease in the percentage of asset correlation, the risk of loss of funds and the standard deviation of the portfolio value decrease, and the risk-reward ratio is growing.
A source: Ray Dalio's book "Principles: Life and work "
A source: Ray Dalio's book "Principles: Life and work "
You can create a portfolio yourself, or take the advice of legendary investors as a basis, but a more rational solution would be to turn to professionals.
About that, securities of which companies should be included in the share of shares when compiling a portfolio 30/70, based on the current state of the market, read the material, which will be released on the portal in the near future.
Important news awaits you here, forecasts and investment ideas, teaching materials, serious analytics and easy reading, as well as a lot of convenient services, including calendars of dividends and buybacks
