Broker Check
The Biggest Lie Financial Advisors Tell

The Biggest Lie Financial Advisors Tell

September 19, 2017

Do you know what drives your investment returns? If you’re like most people, the first thing that comes to mind is probably market performance. Many advisors consistently tell their clients the same lie: that the performance of your investments is the key factor in a successful retirement strategy. But just because it’s what most people think doesn’t make it true.    

If it’s not about returns, then what does matters when it comes to long-term investing results? The truth is that long-term, real portfolio returns are only slightly affected by the relative performance of investments. What drives returns is the behavior of the owners of those portfolios. 


Simply put, there’s no beating the market over long periods, and attempting to do so is time-consuming and potentially dangerous. A 2015 DALBAR study, Quantitative Analysis of Investor Behavior, showed just how poorly investors perform relative to market benchmarks over time. What turned out to be the biggest reason for underperformance by investors participating in the markets? Their decisions. Behavioral biases lead to poor investment decision-making.

It’s just as Nick Murray says, “Wealth is not determined by investment performance but by investor behavior.” Many investors fall prey to emotional decision-making and, in an attempt to avoid losses or cash in on a potential victory, they buy high and sell low. This behavior lowers their overall return and puts their financial plan in jeopardy.


The annually updated research that DALBAR provides shows the importance of behavior, especially when looking at the most recent 20-year average compound rate of return of the average large-cap mutual fund in the U.S. and the average return realized by the average equity mutual fund investor. Although the numbers will change from year to year, the relationship between the two stays rather constant.  

Over 20-year periods, the average fund investor ends up with less than half of the return of the average fund. In a financial world where almost every advisor is touting his ability to outperform the market as the reason he is better than the guy across the street, the sad truth is that his investor is underperforming his own investments by a large margin.

A goals-based strategy with appropriate allocation and diversification coupled with successfully managing investor behavior will account for 90%+ of real world investor return over time. Furthermore, working with a trusted financial advisor who understands that investor behavior is the key determinant of financial success can help you achieve higher returns by avoiding mistakes. Here are a few ways to use your behavior to help your investments instead of hurting them:

  • Keep a long-term perspective. The markets fluctuate every day. You’ll only cause yourself undue stress and make emotional decisions if you monitor your performance and adjust your investments every time something unexpected happens. It’s more important to maintain a long-term view and stick to a disciplined approach. 
  • Look for cost-effective investments. It’s basic math — gross return less costs equals net return. Avoid investments with high costs or hidden fees, which can drastically eat away at your assets over the long-term.
  • Rebalance to maintain proper allocation. We like to meet with our clients at least once a year to review their portfolio and rebalance as needed. This helps ensure that your portfolio still reflects your appropriate level of risk and is adjusted for any significant changes in your life. If you have a long-term investment horizon, there’s no need to rebalance more often than that.


When it comes to investing, what matters most is not market performance or this year’s hot stock picks; it’s applying the right behaviors to a personalized strategy based on your specific goals and needs. Has your financial advisor talked to you about how investor behavior is the key determinant of financial success and how it is addressed in your retirement strategy? Or were you pitched on a value proposition built on the lie of outperformance?

By using a disciplined approach, focusing on the long-term, and working with an unbiased advisor who understands investor behavior, you can work toward your goals and a successful retirement. To learn more about your investment portfolio and what does matter for your specific situation, watch our video on smart investingand contact me at or 585.264.1111 for a no-obligation conversation.


Since 1999, Carl Lutz has served more than 400 families and business owners in the area of building and protecting wealth. Today he spends much of his time helping pre-retirees transition from accumulation to distribution, in conjunction with serving business owners in the areas of estate and succession planning. Along with nearly two decades of experience, he has received the "Advanced Financial Planning" designation, the Chartered Financial Consultant® (ChFC®), signifying his comprehensive and in-depth knowledge of financial services. To learn more about Carl, visit or connect with him on LinkedIn.

Registered Representative and Financial Advisor of Park Avenue Securities LLC, Financial Representative of Guardian

This material was prepared by an independent third party.

2017-45875 Exp. 7/19.