I’m getting a great deal of inquiries right now about whether or not the markets are overvalued. “Buy and hold or market timing” is a common question we hear.
When this happens, invariably, its time for financial advisors and investors to ensure they’re not “Out of their zip code.”
“Out of your zip code?” you might ask. Ever travel or go on vacation and heard of this saying?
I think the best explanation of “out of your zip code” is being on vacation and abandoning all discipline you find in your normal daily and weekly routines: wake time, what you eat, standard hygiene, hours of TV watched, etc.
The fundamentals of daily life that keep you safe, secure and confident in your daily living. And when we drift from our zip code, we tend to eat those forbidden desserts and squeeze in a few more hours of sleep than is otherwise your best option while at home, in our normal routines.
So, how does this apply to the markets “getting overbaked?”
Well, if drifting out of one’s zip code can be seen as “bad behavior,” then overvalued, or the perception of overvalued markets, can be seen as Cancun…OUT OF YOUR (or YOUR ADVISOR’s) ZIP CODE!
Investor or Advisor bad behavior accounts for a tremendous percentage of underperformance in investors portfolios, and hence the INABILITY for retirees to legitimately travel out of their zip code.
Don’t fall victim to “bad behavior” (also known as buying high and selling low) which will happen precisely at times when investors and the prevailing Media Noise will have you believe that markets are overvalued.
“…when looking at long-term returns, the average asset allocation investor has underperformed both equity and fixed income indices. For the 5, 10 and 20-year timeframes, the average asset allocation investor failed to keep up with inflation. Investor bad behavior accounts for staggering investment underperformance.”
The reason for the underperformance is the shifting of investments without a plan or ground rules.
“Out of zip code” markets will prove trying to both Buy and Hold and Market Timing camps, because both will tend to make bad decisions in volatile markets.
A third camp, the Liberated camp offers the best solution for long term outperformance and good behavior while out of your zip code. Kind of like those friends we loathe that on vacation still run everyday and skip dessert – that’s what the Liberated Model is – the disciplined friend, who when out of their zip code, there’s no bad behavior.
The Liberated Investor Model borrows the discipline of “Buy and Hold”, but not the passivity. It borrows the responsiveness of the “Market Timer”, but instead of emotion driving the choices, our model looks at facts and logic.
So in essence, we take the best of both models and combine them into a fact-based, disciplined approach that we call The Liberated Investor Model.
This model is really just common sense – without all the fluff.
Are markets high? It doesn’t matter to Liberated Investors – their investments will be guided diligently as the indicators and markets dictate – WELL in advance of thinking something needs to be done.
Take the Alphavest Challenge and see how the Liberated Model performed in 2008 – the last time markets, advisors and investors were on vacation.