Combating Hidden Trading Costs: Here Be Dragons
Written by Andrew Hunt
Written by Jason Hiley
Have you ever noticed how a newborn’s favorite game is peek-a-boo? Now you see it. Now you don’t. What fun! But somehow, by the time we’re investors, we’ve grown disenchanted with the element of surprise – especially when the “now you don’t” periods last longer than we’d like. In 2015, global markets seemed particularly intent on playing peek-a-boo with us:
It might help to think of the market’s unfolding uncertainty as comparable to that big, blue baby blanket. Current conditions can, and often do obscure our view of the decades of solid evidence which we’ve used to construct personalized, globally diversified portfolios for our clients.
In fact, overemphasizing near-term performance is so common that there’s a name for it: “recency.” In “Beware the Recency Pitfall,” financial author Larry Swedroe describes how investors who succumb to recency in ever-noisy markets tend to fall straight into a “buy high, sell low” trap: “[C]hasing past performance can cause investors to buy asset classes after periods of strong recent performance, when valuations are relatively higher and expected returns are lower. It can also cause investors to sell asset classes after periods of weak recent performance, when valuations are relatively lower and expected returns are higher.”
This is one reason we believe in investing according to decades rather than months or even years of performance data. In a market that seems forever intent on playing hide-and-seek with us, we continue to believe that the best way to capture expected returns is to invest according to our own, evidence-based rules of engagement.
Don’t hesitate to be in touch with us whenever we can review your personal goals and risk tolerances – in the new year, or any time you’re seeking a clear view of where you stand today.
We would love to invite you to learn more about Hiley Hunt Wealth Management and who we serve in Omaha, NE –Financial Planning and Investment Management.