Creating a Financial Plan
Financial professionals provide many valuable services. They can help you:
In addition, financial professionals will provide support and guidance during difficult times, such as:
If you think you can make good decisions on when to buy and sell on your own, consider that the statistics on the “do it yourself” approach are not encouraging.
Findings by Morningstar, a leading mutual fund research firm, compared mutual fund returns with the gains investors actually received. The study found that investor returns typically lagged fund returns.1 The reason: Investors tended to move cash in and out as markets would rise and fall, often buying high and selling low.
The study covered 10 years through the end of 2012, and found that funds posted an average annualized return of 7.05%, compared with a 6.1% average return realized by investors. (The returns factor in all stock and bond funds that Morningstar tracks. Investor returns are weighted based on asset flows into and out of all share classes of open-end mutual funds tracked by Morningstar.)
Although a gap of a single percentage point may not seem like a big difference, it can make a significant impact over the long term, thanks to compounding. In fact, a hypothetical $10,000 investment returning an average of 7.05% annually would produce a total of $19,856 over 10 years compared with $18,078 for an average annual return of 6.1% over the same period. Over 30 years, the gap becomes even wider: $78,286 for the 7.05% return vs. $59,082 for the 6.1% return.2
Returns Based on a Hypothetical $10,000 Initial Investment
What is the reason for the gap between fund returns and investor returns? Financial researchers say the difference is largely attributable to investors buying funds when times are good and then selling when troubles arise. Once out of the market, investors often don’t get back in the market in time to capture much of the later upturn in stock prices.
Stock market volatility makes the problem worse. Fear can drive investors out of the market or cause them to make emotional decisions that could have long-term consequences for their portfolios. A financial advisor can help provide guidance during difficult times and help investors stay the course on their investment strategies.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
Past results are not predictive of results in future periods.