One of the ways to become rich is to emulate rich people. Fayez Sarofim is one of the world’s richest people so it is useful to hear what he has to say on the subject of building wealth.
Many people jump in and out of the market trying to avoid the inevitable down moves, but they fail to catch many of the up moves, thereby under-performing the market and making less than if they had just left things alone.
The average investor is far from contrarian. I remember vividly when a strategist from a top-tier investment firm in the mid-1990’s told me that while the S&P 500 had grown at 13% per year over the prior 10 years, the realized equity returns of his firm’s retail client base, on average, had compounded at only 5% per year. The S&P would have turned $100,000 into $339,000 during that period, but their average investor ended with $163,000.
This is one of the major reasons to hire a wealth manager such as an RIA.
There are a couple of points relevant to portfolio management.
- Think about a reasonable asset allocation for your situation, one you can stick with.
- Have a systematic process for making portfolio adjustments, not one that is undisciplined and responsive to the news environment.
The problem with this advice is that most individuals do not have the discipline to follow it. They know that the advice is good on an intellectual level, but the “nervous energy” that Fayez Sarofim spoke of gets in the way. One of the reasons to hire a wealth manager is to tell you to sit down and do nothing when the temptation to act becomes irresistible