Better Investments – Worth it?

Can you reach your goals more easily with better investments? Probably. The hard part is knowing what to use and when.

Better investments might return an extra percent or ten over a given period, or they may have better measurements such as Alpha.

But really, what do you get from chasing better investments?

For many people with long term goals, the answer is not much. As long as you do a decent job setting up an investment mix and use decent investments, you’ve done most of the hard work. The other important part, by the way, is actually putting enough money into those investments over time.

What’s the Point?

Some people want to constantly switch to better investments. They may have better ratings from research companies, different fee structures, or a higher measurement (such as Alpha).

What’s the point of all this switching? To reach your long term goals? A retirement that’s 20 years away? If so, you probably won’t accomplish much.

Granted, anything’s possible. Your activity might yield tremendous results, repeatedly do wonderful things, and have a knack for finding better investments year after year. Just be aware that most people don’t. Your neighbors might not appreciate if you tell them how well you’ve done.

What’s the Alternative?

For long term goals like accumulating funds for retirement, a textbook strategy will often do the trick. Diversify within and among asset classes, and among investment strategies (fine, include a little tactical asset allocation if you want, but don’t bet the farm).

Do a good job setting it up, and don’t change your system unless you have a really good reason to do so. Major lifetime events and carefully considered philosophical changes fall into this category. Something you read in a magazine does not.

Over long periods, chasing better investments can actually harm investors (see Investor vs Investment Returns).

You can’t eat a higher alpha, and an extra percent or few this year is not likely to change your monthly retirement income. Unless you’re working a repeatable system, you’re probably just overworking your brain.

If you insist on chasing better investments, take an honest inventory of your success periodically. Were you successful? Was it worth the time and energy you put into it?