Last week, I teamed up with Bill Shultheis of The Coffeehouse Investor to produce a weekly internet radio program/podcast. If you haven’t had a chance to listen to the first episode, you can  tune in at your leisure on our BlogTalk Radio channel. Our next episode will air Wednesday, May 6, 1:00 p.m. ET / 10:00 a.m. PT.

T-Shirt Update: We’ve sold out of the XL Behavior Gap T-Shirts. If you’re interested in reserving one from the next batch we order, please drop me an email.

Buying High and Selling Low Continues for Many Investors

I’m no pro when it comes to predicting the stock market. In fact, most people aren’t. If you want to maximize your investment returns, you need to exhibit the right behaviors. If you let the headlines and your quarterly statements drive your investment decisions, you’re probably going to be one step behind and reacting to an event. If you react, it’s too late. Instead of reacting, you want to be planning.

With planning, you are putting measures in place to take advantage of the future. Yes, the future is unknown, but you can still create a plan that will maximize your returns based on your investment objectives. Then instead of always taking action after something happens, you can keep your emotions out of it and know that you’re doing what’s best based on sound principles, not a reaction to an event in the past.

Financial Planners, Volatility, and Asset Allocation

I’m absolutely convinced that increased knowledge about the cyclical nature of markets and the actual (as opposed to purely psychological) consequences of volatility leads to increased volatility tolerance.

Note: I’m not saying that it leads to any particular, extremely high level of volatility tolerance, just that I believe it increases it.

There’s no question that a greater tolerance for volatility is a good thing. It can allow an investor to:

• (safely) invest a greater portion of his portfolio in equities, or
• have a greater degree of comfort–and therefore a smaller chance of making a mistake–with whatever level of equity allocation he already has.

And I think that helping an investor develop his tolerance for volatility is one of the most valuable services a financial planner can provide.