Because certain indexes have performed well over the past few years, those who promote passive investing recommend that you follow the current fad and simply buy index funds.
Index investing can be useful if it is done right. However, it can be dangerous done blindly. Passive strategies are fully exposed to the whims of the market, and can expose investors to significant declines and risks. S&P 500 Index investors lost almost half of their account, twice, in the past 16 years. Index investing works great… until it doesn’t.
Most investors don’t have the expertise or temperament to endure large losses and still stick with their strategy. They often sell out near the bottom of a decline, which locks in their losses permanently.
Some investment losses are unavoidable; they come with the territory. The key is to minimize those large losses that can quickly reverse all the benefits of investing. Even though it may be time consuming, you should research thoroughly before turning over your money to someone else. This will increase your odds of avoiding investment scams and subpar money managers.
For example, if you lose 25% of your account, you need to make 33% to get back to even, which is workable. If you lose 50% of your portfolio, you have to make 100% to get back to even, obviously a much more difficult task. A loss of 90% of your portfolio requires a gain of 900% to get back to even. Forget about it. A much better scenario is to follow a sound investment strategy that seeks to avoid those big, dramatic losses in the first place.
Making money is difficult. Keeping your money is even harder. There seems to be ten ways to lose money for every one way there is to make it. To complicate things further, managing investments is counterintuitive. Research repeatedly shows that most people invest when they shouldn’t, and don’t invest when they should. According to studies by Dalbar, for the 30 year period ending December 2013, the average stock market investor earned only 3.69% compounded versus 11.11% compounded for the broad stock market. Underperformance of 7.42% annually for 30 years is an enormous penalty for making the wrong decision!
The bottom line is that if you do not have the time, resources, and expertise to manage your money, then you are walking into a minefield. Over the years, I have seen countless people lose their entire savings to bad investment decisions. Whether it be through leveraged real estate, misguided business ventures, bad annuities, poor stock choices, expensive life insurance, loans to relatives, or even offshore investments, the end result is always the same—they lose their savings, and what was once a good situation turns into a bad one.
Your success has brought you money; that money can be a blessing or a curse. If you manage it properly, it can help you simplify and enjoy your life by allowing you to do whatever is most important to you. If you don’t make good money decisions, it can bring you more grief than good.
Everywhere you turn, there are different voices telling you how to invest. Financial news channels, magazines, insurance companies, infomercials, self-proclaimed experts, etc. There is no shortage of free advice. The problem is that most free advice is worth about what it costs.
Paragon has been guiding investors for 30 years. We have experienced, survived, and thrived in some of the most difficult markets in U.S. history. Those very difficult markets include the Crash of 1987, the Asian Crisis of 1998, the Tech Collapse of 2000 and the Financial Crisis of 2008. We have steadily grown in the face of adversity.
Our clients are our friends. We are their guide. Our money is invested right alongside theirs. Most clients initially choose Paragon because of our stellar investment performance. However, as time goes on, they realize that our highest value is actually protecting them from their inexperience and stopping them from making bad investments. It is our mission to help our clients make the right decisions and find financial peace of mind.
Paragon Wealth Management is a provider of managed portfolios for individuals and institutions. Although the information included in this report has been obtained from sources Paragon believes to be reliable, we do not guarantee its accuracy. All opinions and estimates included in this report constitute the judgment as of the dates indicated and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Do not rely upon this information to predict future investment performance or market conditions. This information is not a substitute for consultation with a competent financial, legal, or tax advisor and should only be used in conjunction with his/her advice. Past performance is not a guarantee of future results.
Dave Young founded Paragon Wealth Management in Provo, Utah 29 years ago. His investment methods have attracted national and local attention. He has been interviewed by BusinessWeek, CNBC, the Wall Street Journal, the Deseret Morning News and other national and local media