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The Biggest Lie Financial Advisors Tell

By Ross Biesinger

April 2018

The Biggest Lie Financial Advisors Tell

Do you know what drives your investment returns? The first thing that pops into your mind is most likely market performance. Many advisors consistently tell their clients the same lie: that the performance of your investments is the key factor in a successful retirement strategy. But just because it’s the popular opinion doesn’t make it true.

If it’s not about returns, then what does it matter when it comes to long-term investing results? The truth is that long-term, real portfolio returns are only slightly affected by the relative performance of investments. What drives returns is the behavior of the owners of those portfolios. Every advisor wants to tell their clients that their particular choice of investments outperforms the investments of their competitors, but that’s not true over long periods of time. It just doesn’t matter that much when we’re thinking about long-term retirement planning success.

The Problem Of Behavioral Bias

It would be nice if we would beat the market on a long-term basis, but that’s not reality. If you sacrifice your time and energy (and money) in an attempt to do so, all you are doing is wasting your precious time and risking your investments. A 2015 DALBAR study, Quantitative Analysis of Investor Behavior, showed just how poorly investors performed relative to market benchmarks over time. What did they discover to be the biggest reason for underperformance by investors participating in the markets? Their decisions. Behavioral biases lead to poor investment decision-making.

Many investors fall prey to emotional decision-making and, in an attempt to avoid losses or cash in on a potential victory, they buy high and sell low. This behavior lowers their overall return and puts their financial plan in jeopardy. Other habits that put your financial plan at risk are not maintaining a liquid emergency fund and drawing down your retirement accounts for non-retirement expenses.

How Important Is Behavior?

The annually updated research that DALBAR provides shows the importance of behavior, especially when looking at the most recent 20-year average compound rate of return of the average large-cap mutual fund in the U.S. and the average return realized by the average equity mutual fund investor. Although the numbers will change from year to year, the relationship between the two stays rather constant.

Over 20-year periods, the average fund investor ends up with less than half of the return of the average fund. In a financial world where almost every advisor is touting his ability to outperform the market as the reason he is better than the guy across the street, the sad truth is that his investor is underperforming his own investments by a large margin.

A goals-based strategy with appropriate allocation and diversification coupled with successfully managing investor behavior will account for 90%+ of real world investor return over time, according to Vanguard research.[1] Furthermore, working with a trusted financial advisor who understands that investor behavior is the key determinant of financial success can help you achieve higher returns by avoiding mistakes. Here are a few ways to use your behavior to help your investments, instead of hurting them:

  • Focus on the long-term. The markets fluctuate every day. You’ll only feel increasingly stressed and prone to making emotional decisions if you monitor your performance and adjust your investments every time something unexpected happens. It’s more important to maintain a long-term view and stick to a disciplined approach and avoid making decisions based on what the media is feeding you. 
  • Look for cost-effective investments. It’s basic math — gross return less costs equals net return. Avoid investments with high costs or hidden fees, which can drastically eat away at your assets over the long-term.
  • Rebalance to maintain proper allocation. We like to meet with our clients regularly to review their portfolio and rebalance as needed. This helps ensure that your portfolio still reflects your appropriate level of risk and is adjusted for any significant changes in your life or drastic market fluctuations. 

The Performance Measurement That Matters Most

When it comes to investing, what matters most is not market performance or this year’s hot stock picks; it’s applying the right behaviors to a personalized strategy based on your specific goals and needs. As you reach retirement, you can’t afford to let your emotions dictate your financial behavior. At Cypress Wealth Services, we know that investment philosophy, legacy plans, risk control, cash flow strategies, and liability management demand a specialized approach during the “Second Growth. By using a disciplined approach, focusing on the long-term, and working with an independent advisor who understands investor behavior, you can work toward your goals and a successful retirement. To learn more about your investment portfolio and what does matter for your specific situation, contact one of our offices today for a complimentary consultation.

About Cypress Wealth Services

Cypress Wealth Services, an independent RIA firm providing financial planning and investment management to high net worth individuals, families, business owners, and institutions. CWS is comprised of professionals with diverse backgrounds and extensive experience and qualifications. CWS is uniquely qualified to serve a broad range of client needs. Their experience and expertise act as a foundation for their client service process, The Second Growth, which focuses on efficiently protecting, growing, and transferring to their loved ones the wealth and legacy a person has already built. With offices in Palm Desert and Anchorage, the firm serves clients across the country. Learn more by visiting

[1] Putting a Value on Your Value: Quantifying Vanguard’s Advisor’s Alpha-September 2016