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Vancouver, B.C. (November
15, 2000): Buy! Sell! Conventional wisdom
says the best way to make money is to play the
markets, often every day, buying low and selling
high. But here's a hot tip you can rely on -
it doesn't work.
Nobel Prize winning studies conclusively
demonstrated that long-term investment decisions
provide the bulk of returns, not stock selection
and market timing.
Unconventional wisdom advocate and
fee-only investment counsel Adrian Mastracci,
of Vancouver based KCM Wealth Management,
maintains that long-term "asset allocation" decisions
have a far greater impact on portfolio returns
than any other factor. Asset allocation means
the combination of the choices of asset classes
(such as cash, bonds, and equities) and the choices
of asset mix (such as Fortune 500 companies versus
small companies) that you pursue for your portfolio.
The studies found that over time:
- Playing the market had little impact on portfolio
returns, with stock selections explain, on average,
4% of the contribution to total return.
- Shifting assets in and out of the markets,
or between classes, explain, on average, 2%
of the contribution to total return.
- Long-term asset allocation decisions explain,
on average, 94% of the contribution to total
return.
“Occasionally, active management
makes the proverbial market killing,” sums
up Adrian Mastracci. “However, it is very
difficult to consistently beat the markets. It's
been well documented that, over the long haul,
active management always plays the losing game.
“The road less travelled is
the winning path that explains the majority of
investment returns.”
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