Why You Don’t Need to Outsmart the Market to Be a Savvy Investor

By Brett Gottlieb

What’s the magic strategy to become a successful investor?

There’s a common misunderstanding that the most accomplished investors are the ones who analyze trends to pinpoint the perfect moments for buying and selling. There’s also a misconception that if you’re not following this approach, the best outcome you can achieve is mediocre investment results, missing the mark to true financial success.

Drawing upon my nearly 20 years of experience in the industry as a financial advisor, I want to dispel this idea. I believe success as an investor doesn’t hinge on elaborate scheming or outsmarting the market, and in some instances, these tactics can be detrimental to your overall portfolio. Here are three compelling reasons why this could be the case.

1. You Can’t Outsmart the Market

Outsmarting the market usually involves attempting to “buy low and sell high” by analyzing current market trends for inefficiencies or volatility indicators. This is a common strategy used by both portfolio managers and everyday investors alike. It may work sometimes, but it is far from perfect.

In fact, a new SPIVA report shows that 68% of active fund managers underperformed their benchmarks in 2022. The long-term results of this report are even more significant: 84% of active fund managers underperform after 5 years and 95% underperform after 20 years.

Not only does outsmarting the market involve guessing when to buy in, but you then have to guess when to sell. That means for every gain, you have to be right twice to make timing the market worth it. Unfortunately, market moves can only truly be spotted in hindsight, and outsmarting the market is often closer to playing the lottery than it is to an educated guess.

Consider Investing simply by relying on time in the market instead of timing the market. The longer you stay invested in a particular asset, the more likely you are to experience growth over the long term. Considering the S&P 500 Index has averaged around 9.4% for the last 50 years, this strategy doesn’t seem all that bad. Buying and holding often results in much lower stress and a more ideal investment experience for the average investor over the long term.

2. Riding the Wave Could Be Less Expensive

Trying to outsmart the market has been around just as long as the market itself, and though it rarely works, many people keep trying. Not only are you less likely to outperform the market through market timing, you could further reduce your returns depending on how often you trade. That’s because outsmarting the market can be expensive.

Depending on your account type, asset class, and where you are executing your trades, you will likely be charged for every purchase and sale you make, and that’s on top of any taxes owed on gains. The more frequently you trade, the higher your transaction costs will be.

If you held the assets for less than a year, your gain will be taxed as ordinary income at your marginal tax rate, which can be as high as 37%.

Even if you find an actively managed fund that is able to beat the market, they have to do so by a wide enough margin to cover its higher costs and more. As such, even some funds that beat the market end up with lower returns once fees are taken into account.

3. Staying Invested Could Produce Better Returns

Many investors will sell their positions during times of volatility in order to avoid or reduce a loss. But how do they know when to buy back in? This is one of the most difficult aspects of outsmarting the market, and it often leads to much less growth than staying invested the whole time would have produced.

For instance, a recent study by Schwab Center for Financial Research found that bad market timing is worse than investing immediately, regardless of the market conditions at the time of investing. This indicates that even in market downturns, or just before a downturn, investors who invest immediately and remain invested are usually better off than those who stay on the sidelines or attempt to time the market.

The time value of money tells us that a dollar today is worth more than a dollar tomorrow, and this is certainly the case when it comes to investing. In our experience, the longer you are invested, the more likely you are to ride out the fluctuations of the day-to-day market and experience growth.

A Custom Strategy to Set You Up for Success

The market can be an unpredictable force, and often catches everyone off guard. Similar to selecting winning lottery numbers, the chances of crafting a successful stock market strategy by hand-picking stocks are quite slim—if not entirely impossible. Consider working with a professional who can help filter out the noise and concentrate on the long term.

At Comprehensive Advisor, our goal is to help you uncover, shape, and actualize the life you want by aligning your financial decisions with your vision and values. We’ll craft a robust wealth investment strategy to help weather the market’s ups and downs. Contact us by emailing us at info@ComprehensiveAdvisor.com or calling (760) 813-2125.

About Our Advisors

Brett Gottlieb is the founder of Comprehensive Advisor and a financial advisor with nearly two decades of industry experience. He graduated from California State University-Chico with two bachelor’s degrees, in business administration and economics, and is Life Insurance licensed in several states. He is passionate about guiding his clients on retirement income planning, helping each client pursue their specific retirement goals, and defending the assets his clients have worked so hard to achieve. Brett is a California native and currently resides in San Elijo Hills with his beautiful wife and three children.

Our team of qualified professionals have experience in the financial service industry, and our advisors hail from some of the largest independent broker/dealers and banking institutions in the country. They have dedicated their professional careers to creating personalized financial solutions for individuals and families who seek successful retirement planning and currently offer investment advisory services through AE Wealth Management, LLC. Our advisors take a common-sense approach to the planning process and work with clients to create a retirement road map to help ensure their assets are protected and they receive the income needed to enjoy their future. Based in Carlsbad, California, they work with clients throughout San Diego County and beyond. Learn more by connecting with Brett on LinkedIn or email them at info@ComprehensiveAdvisor.com.

Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor.  C.A. Financial & Insurance Services, CA Ins. Lic. #6000262. This material is intended to provide general information and is believed to be reliable, but accuracy and completeness cannot be guaranteed. Investing involves risk, including the potential loss of principal. Any references to protection benefits, safety, security, lifetime income, etc., generally refer to fixed insurance products, never securities or investment products. Neither the firm nor its agents or representatives may give tax or legal advice.  Individuals should consult with a qualified professional for guidance before making any purchasing decisions. 2009074 – 9/23