By: Jack Strada – KOM Financial Planning
I was recently in the US enjoying the UCI Road World Championships (more on that in a future blog) and took notice of a new ad campaign by E*Trade. Let me first say that E*Trade has been a fantastic development for individuals that want to grow their net worth. I am old enough to remember the days before online brokers and trading costs were much higher than they are today. So low-cost platforms have enabled more and more people to become investors, and that is a good thing. The flip side of this ease and low cost is that people may tend to become too active and trade too much.
This advertisement implies individuals can spot opportunities and profit from this. First, let’s look at a few facts: In 2014, the average business day saw 60 Million equity trades take place with a total of $302 Billion of value changing hands. The majority of these trades were executed by experts with deep knowledge of the business’s they are buying and selling. In my view, it is unlikely an individual walking down the street will spot an opportunity that has not already been identified, and profited from, by a professional analyst. In addition, the more an individual trades, the higher their trading costs will be. Every time you add costs to your portfolio, the better your portfolio must perform to overcome these costs. So please think twice before acting on impulses, and do seek advice on your investments.
For the individual, I recommend to focus on what you can control: staying disciplined, diversifying, keeping your costs under control, and letting markets work for you.
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