Weekend Reading: The Perfectly Imperfect Investor

This article appears as part of Casey Weade's Weekend Reading for Retirees series. Every Friday, Casey highlights four hand-picked articles on trending retirement topics and delivers them straight to your email inbox. Get on the list here.
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Weekend Reading

It’s often said that you are your own worst critic. You make a split-second decision one day, then the next, you’re questioning the move you made; It’s human nature.


Hindsight bias: In the world of investing, critiquing prior financial choices is common, and is what economists refer to as “hindsight bias”. It means after making a particular investment decision, you might: Change your opinion, so your new opinion more closely matches how reality unfolds. Or, create explanations, which incorporate events that happened to rationalize your decision.

The perfect vs. imperfect investor: Someone with a 60% stock, 40% bond portfolio in today’s economic climate might have two complaints: Missing out on gains with 40% out of the market over the past decade – And, a portfolio decline of about 10 percent to date this year. If the “perfect investor” took hold of this client’s portfolio, they would know when to switch between 100 percent stock to 100 percent bond based on market timing. On the other hand, the “imperfect investor” cannot time the market, thus would not be comfortable allocating 100 percent to either stock or bond at any given time.

A meticulous mix: It is important to remember that no matter what decision you make, there is no such thing as a “perfect investor”. This is why finding a mix of both perfect and imperfect is key to being a “good investor”. It begins with maintaining self-awareness, followed by not timing the market, understanding your need for return and risk, accepting your portfolio will never be perfect and above all, knowing the purpose of your plan.

Note this: While you’ve heard the story before, have you heard missing the best three trading days a year over 20 years would have turned a 7.7 percent annualized return into a 1.8 percent loss?