In seconds, lunch turned into an investor support group.
I was sitting on the sidelines between games of my daughter's lacrosse tournament when the parents of a teammate asked for help. Their problem is that they're afraid of investing right now.
Quickly another parent chimed in with their big concern, and then another. And suddenly, lunch was a confession session, where the group was discussing its biggest troubles as fund investors, hoping I could play Dr. Phil and solve the problems.
For many people, the best solution is to diversify your problems as well as your investments. Individually, each parent in the group voiced one significant issue; collectively, they might have been able to combine into one really solid, conscientious investor. To see why, consider what the group members fessed up to, and see how a little of each may be healthy, but too much of any one could be deadly.
"I'm too scared to invest right now," or "I'm waiting for the right time to invest."
Fear is one of the two big demons for typical investors. Mild worry is both appropriate and good, but paralyzing dread is over the top.
That's especially true when you add in an element of timing. The market can be scary in all market conditions. Investors may not worry about upside volatility - no one complained that stocks were rising too fast during the 1990s - but they should accept the danger that a market that rises fast can fall equally quickly. Moreover, a scared investor is likely to wait well past the market's sweet spot, allowing the best opportunities to pass while trying to get a sense that the time is right.
"No fund seems to be good enough."
This problem stems from setting expectations improperly. Funds should meet two primary performance goals. They must 1) deliver the returns that you expect from the asset class, and 2) perform in a way that is equal to or better than the competition.
If absolute returns are down, but the fund remains above average in its category, chances are it has met reasonable expectations. Investors who expect top-of-the-pack, always-positive absolute returns tend to be demanding too much and are likely to always be disappointed with their holdings.
"It seems like whenever I buy a fund, it stops doing well."
Typically, this comes from the other big bugaboo, greed. If you wait until a fund has tremendous performance to buy it, you are almost certain to be disappointed. Momentum lasts for a while, but when returns slide back to the pack, investors wind up experiencing the fall from grace without having gotten much of the rise.
This is a problem with how the investor selects funds, rather than with the funds being picked.
"I'm making all the right moves ... although my performance doesn't quite show it."
Investors tend to think they are making the right decisions, but anyone who makes a lot of moves needs to guess right most of the time. It's not just making one great timing call, you have to make the right move again and again and again.
Most people simply can't do that, and tend to focus on their successes and ignore their defeats. If your portfolio doesn't show those "right moves" panning out, the problem may be that you're making too many moves. For most investors, that's a problem.
"I'll change my habits when I have more money to invest."
This is an excuse for not setting aside enough money, or for not worrying much about financial planning because you don't think you have "enough."
People with less money have less to lose, and they tend to feel the pinch faster and tighter than someone with a lot of money. While many people eventually have enough money to feel they should hire a financial adviser or learn a lot more about investing, the truth is that they may have waited too long - and wasted a lot of opportunity - by treating their small nest egg like it was "no big deal."
"I'm not doing what experts suggest, but my way works for me."
Confidence is good, until you go over the top with it.
Think back to the bull market, when investors loaded up on tech stocks and forgot about diversification, ignoring downtrodden asset classes like real estate or bonds. It was a successful strategy, right up to the point where it failed, when the market turned and the investors got killed for ignoring conventional wisdom.
Traditional financial planning is not perfect. It has a lot of wiggle room, but it typically works better over the long run than most other "systems" that an investor can follow. An overconfident investor may have a problem with that, but if his system ever stops working, it may be too late to recover.
Charles Jaffe is senior columnist for MarketWatch. He can also be reached at Box 70, Cohasset, MA 02025-0070.