As fiduciary fee-only CFP® Practitioners we invest our clients’ monies in Institutional Investments rather than the Retail Investment Menu of investments available to non-investment professionals.
The differences between Institutional Investing and Retail Investing are large; most especially the cost savings with Institutional investing are often significant, as well as the avoidance of ‘herd mentality’ in Institutional investing.
You know, the ‘herd’ of investors reacting to the media’s hype when they shout, “the stock market is crashing!” Retail investors are prone to ‘selling’ at this type of news, because the urgency with which the media pundits are spewing out these words connote, “don’t just sit there, DO something…(stupid).”
And when a lot of people sell out of mutual funds, for example, the mutual fund manager has to settle up the books by 4pm each trading day. In other words, each mutual fund manager has to sell out the requisite number of shares of some stocks in their portfolio to raise enough cash to satisfy the panicked investors’ due. These same mutual fund managers understand full well, that market price drops have historically been followed by a recovery, in due time, yet they are forced to parse through their holdings and select which stocks (or bonds) to sell, at, you guessed it, depressed (and sometimes SIGNIFICANTLY depressed) prices. So, that kind of emotionally driven action penalizes all of the remaining retail investors in that mutual fund, insomuch as that necessity to cash out those sellers at day end, has compromised that mutual fund manager, as well as the long-term return for those who remain invested; i.e., the otherwise more savvy investors.
Institutional investors don’t often fall prey to that type of short-term market volatility sellers, and thus, often reap the higher returns that typically follow.
At Empowered Retirement, Inc. we follow specific recipes that align with our investors’ objectives, seeking to limit downside risk while giving our clients capital appreciation potential. Far be it from us, or anyone to opine on the future direction of the markets, yet we use a disciplined approach, that Dimensional Fund Advisors has developed, which you can learn about here. It’s called Asset Class Investing.