Originally published at: Is my financial advisor good at picking stocks? – Personal Finance Club
This is a mistake I see a lot, whether or not you use a financial advisor. A new investor will look at their portfolio returns over the past year and judge them relative to zero. If you’re picking stocks and you’re up 15% that’s actually pretty terrible performance if the market is up 20% over that same time period. (Losing by 5%/year to the market would be devastating to your returns).
On the flip side, if you look at your returns for the past year and see you’re DOWN 5%, that doesn’t mean it’s time to fire your financial advisor. If the market was down 15% over that time, you’ve just outperformed the market by 10%!
In general, investment growth doesn’t come from brilliant picking and trading of stocks. It comes from buying and holding and letting the growth of the market do its work.
The easiest way to do that is by buying and holding index funds! Index funds guarantee you your fair share of market growth with maximum simplicity and minimal fees.
As always, reminding you to build wealth by following the two PFC rules: 1.) Live below your means and 2.) Invest early and often.