Make More, Worry Less Investing^[*]

^[*] Remember that this data is historical and past performance is not a guarantee of future results.

Once you have the "make more" part of this book down, then what do you do with all of that money? Here's something to keep in mind when putting all of your performance bonuses to work. On my financial talk radio show, I refer to it as "Make More, Worry Less Investing."

I've been in the investment business for nearly a decade and have worked with hundreds of families to ensure they meet their retirement and investment goals. My team and I manage more than a quarter of a billion dollars for our clients. I've had the pleasure of working with some fantastic investors—as well as those who continually seem to shoot themselves in the foot. For the purposes of this section, let's refer to the great investors as the "Make more, Worry less" type and the poor investors as the "Worry more, Make less" type.

Here's what happens:

The "Worry More, Make Less" group constantly looks for a better deal, a hotter mutual fund, and listens to what their neighbors are doing with their money. They persistently chase a dream to make more than their peers—and everyone else at the neighborhood cocktail party. I'll get to how this group ends up in a minute…

The "Make More, Worry Less" group looks at their investment career like building a house. They formulate a realistic plan, stick to the plan while building the house, put in a solid four-sided foundation, and enjoy living in the home for years. As major circumstances change, like having children or caring for elderly parents, the house can be modified, updated, or improved upon over the years. This group utilizes the following four steps with their investments:

1. They formulate a solid financial plan and set realistic long-term expectations for how their money should grow over the years.
2. They set an asset allocation plan in place that is in line with their ability to take investment risk and market fluctuation. The asset allocation will determine how much they have invested between stocks, bonds, cash, real estate, and other alternative investment vehicles.
3. They choose the most effective investment vehicle or investment management for each piece of their asset allocation pie.
4. They review the plan four times a year—rebalancing their investments if needed and monitoring for any major changes or shifts that would affect their initial plan.

This process repeats itself from step 1 through step 4 over and over again—and by having each step in place from day one, the "Make More, Worry Less" group historically invests well.

Here's the problem: Most investors fall into the "Worry more, Make less" group and suffer dismal long-term results!

A study^[1] conducted in 2006 by DALBAR, Inc., (Quantitative Analysis of Investor Behavior) reveals: From 1986 through 2005, the average annual return for the S&P 500 stock index was 11.9%. In that same period of time, the average annual return for stock investors was a dismal 3.9%. This result barely keeps up with inflation!

^[1] Article published by Putnam Investments that cites the study. Putnam's article is titled "What everyone should understand about investing for retirement." Source cited: DALBAR, Inc., Quantitative Analysis of Investor Behavior, 2006.

What's the culprit? Over that 20 year period, the average stock fund investor held their funds for less than 3 years before switching to another fund! They were constantly chasing funds that had already done well in the PAST! By the time they made the switch, they were always catching the tail end of a trend. How much sense does that make?

Another study^[2] managed by professors^[3] Brad Barber and Terrance Odean examined 66,000 households and their investment trading habits between 1991 and 1996. The professors discovered that investors who traded the least earned more per year—7 percentage points more—then the most frequent traders.

^[2] Money Magazine (September 2007) "The Best Advice of All Time—20 rules for success from some of the smartest investors (and other people) who have ever lived." by Carla Fried

^[3] Brad M. Barber, Professor of Management, Director, Center for Investor Welfare and Corporate Responsibility Ph.D., University of Chicago. Terrance Odean, Professor of Banking and Finance at the Haas School of Business at the University of California, Berkeley.

The lesson here is to take the lead from the "Make more, Worry less" group—who formulate a good long-term plan, commit to it long term, and make modifications as needed over time. "Worry Less" doesn't refer to not caring about your money or investments—it just means that constant tinkering, timing, and chasing returns usually turns out badly.

"It never was my thinking that made the big money for me. It was always my sitting. Got that? My sitting tight!"

—Edwin Lefevre (American journalist and writer most noted for his writings on investments and Wall Street business)

For more information on "Make More, Worry Less Investing," visit www.wesmoss.com.