Investment advice - the path to higher returns

Do less - it increases your return

In the investment world, it is often assumed that in the pursuit of a good return, you should be active and continuously change your investments. Many people believe that doing something when the world changes is better than doing nothing. Because it feels better and because it's better storytelling to adapt rather than sit on your hands.

But is that attitude wise?

3 main reasons why many investors take a very active approach to portfolio management

Reason 1: The market is changing

There is constant news and new investment themes to consider: artificial intelligence, robotics, climate, war, virtual currency or forecasts of rising interest rates and economic recession. It's hard to stand still when the world is changing. But it's constantly changing.

2.reason: Human nature

You act based on emotions. The assumption is often that others will get a better return than you. And there's a fear of underestimating the importance of what's happening right now over what happens in the long term. The violent price fluctuations of the markets don't always bring out the most sensible behavior.

3rd reason: We love telling a good story

How much was last year's return? How are investments adjusting to the economic recession (which is still to come)? Did you sell out before prices fell last year? Did you buy back in before prices rose? If you don't take action on an ongoing basis, there are fewer good stories to tell.

Keep calm and increase prosperity

It is said that soldiers are trained to remain calm and assess the situation instead of reacting to everything that moves in the bush. In the world of investing, there is news and investment opportunities to consider every day.

Warren Buffett, considered the most successful investor in the world, once said that you increase your wealth if you only make 20 investments over a lifetime, and once you've made them, you've spent your money.

In such a situation, you choose your investments more thoughtfully and have limited yourself from reacting to news and new investment themes.

Investments take time

At the end of the day, you get returns by owning companies that generate profits for many years. If you look at the asset-weighted average for Danish investment funds with global equities, the shares are held for just over two years at a time, according to figures from Finansdanmark from 2022. That's not exactly what Buffett recommends.

It's clear that there is a need to risk-adjust the portfolio on an ongoing basis. Because when prices change, so does the portfolio. This also applies to factors such as bond yields, lending rates, banking conditions, the availability of investment opportunities and funds. In addition, your wealth goals and objectives may change.

Why do something?

It may seem odd to suggest that doing less leads to higher returns. But transaction costs, exchange rate spreads, currency exchange, unfortunate or bad timing, etc. mean that there is a point where you end up doing yourself a disservice by making (too) many adjustments to your portfolio.

The point is that the starting point for changing investments should be "why do something?" instead of "what am I doing?".

You could also say what John Bogle, founder of asset manager Vanguard, said on CNBC: