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Top Four Ways to Avoid the Performance Trap

There are many things that can affect whether you are able to attain your goals but this short list is a good start. Personal trainers or executive coaches don’t have the secrets of success that no one else does.

Rather, they’re effective because they’re able to give their clients a simple set of rules to follow, AND they provide the discipline to make sure that action is taken based on those rules.

A financial advisor can create a plan tailored to your personal financial needs while helping you stay disciplined so that you can reach your goals – and avoid getting caught up in the performance trap.

Here are four ways to avoid the Performance Trap:

4) Diversify your portfolio – Instead of focusing on performance, make sure your asset allocation of stocks, bonds and cash matches your financial goals, time horizon and appetite for risk (otherwise known as how much you can stomach losing when the market goes down). This is probably the key to your long-term investment performance.

3) Keep your investment expenses low – While some investment expenses are inevitable, you should make sure your investment expense fees are well below industry averages. The average mutual fund expense ratio in 2013 according to Morningstar was 1.25%. These fees can cost you a lot of money in the long run so you should try to keep your average investment expense ratio below 0.50%.

2) Rebalance your portfolio 1-2 times a year – Academic research is clear that systematic rebalancing is the best way to keep your investment portfolio aligned with your long-term financial goals. Rebalancing can’t guarantee better performance, but it can help reduce your portfolio risk and provide discipline for selling high and buying low. Additionally, adding to your investment portfolio when investments are on sale is a good long-term strategy. When the market is down 15-20% or more, it’s generally a good time to invest some extra cash to help reach your investment goals.

1) Be disciplined and stay the course – It’s okay to look at your portfolio performance, but it’s best understood in the context of your overall financial goals and the risk/reward relationship you can stomach. You need to be strategic, not tactical, in your investment thinking.

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