When opening up the post recently I was surprised to find that funds I'd bought into had been changed by the company that manages them. Looking through the terms and conditions I see that they include "free switching between funds at any time". It doesn't refer anywhere to whether I need to agree to the switch.
I took out this policy when my son was born. I was determined to be a responsible parent and wanted to tick the "save for my child" box.
Now, though, I question whether the way I have gone about it is the best approach.
What I'm debating is passive vs active investment strategies. And I'm not the only one.
A friend shared with me that her portfolio is at just about break-even - some funds have outperformed the market by a long run, but their returns were overshadowed by others that haven't done well, and there's one that was mismanaged and it appears that money put into it will never be recovered.
Her husband wants her to get out of the investments. She wants to stick with them. Her argument is that things will go up once they're done going down, and the cost of making changes adds up.
Her husband, and the professional managing my fund, are reacting in a very common way - they're being human. We humans are inconsistent, irrational and marred by cognitive biases; mistakes in thinking that we make when processing information.
To generalise, we sell when things start costing less and buy when they cost more. And we do what we see others do. Going by the results of a report on investor behaviour that the financial research firm Dalbar came out with last year, this is costing us dearly.
Dalbar's methodology has been questioned by some, but regardless of whether the figures they came out with are spot-on, their findings should serve as a shot in the arm for us all.
The study finds that the average investor in the US earned 7.4 per cent less profit - every year for three decades through until 2013 - than if they would if they had put that money in the S&P 500 for that duration.
So for every US$1,000 invested, the index returned a healthy $23,519.16 thirty years down the line - but the average Jane and Jo didn't get this. They pocketed $2,974.15. A whopping difference is an understatement.
This is the cost of being human.
What is it about us humans that makes us do things that go against what is best - or at least better - for us?
It's our behaviour. Or rather, our misbehaviour.
Which brings me to passive investment. It is simple: you put your money in and walk away. All passive investment does is replicate the returns of an index. It's about holding on to things through thick and thin.
Here's another example of how this method appears to work better than us making decisions, this time from the UK where professional fund managers were calling the shots. The gains of London's FTSE All Share over a five-year period were compared to those of an active peer group - the Investment Management Association UK All Companies - where decisions were being made regarding which shares to hold on to and which to sell. The assumption was that, in both cases, the same types of companies were invested in. Again, passive investment came out as the better performer. The FTSE All Share had risen 9.45 per cent over the duration, whereas the active group had gained only 3.7 per cent.
Of course, some fund managers will be stars and outperform indexes, but how do we know who these people are?
Going by these findings, and the hassle factor of following up, fretting and second-guessing, I'm leaning more towards a sink-it-and-stand-back model.
The message is simple: trust no one, not even yourself.
Nima Abu Wardeh is the founder of the personal finance website cashy.me. You can reach her at nima@cashy.me.
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