Do Inheritors Need to Beat the Market?

“Beating the market” shouldn’t be anyone’s investment goal, and this especially applies to families that have inherited investment portfolios.

Oddly enough, most of the investment industry and investing public is fixated on the idea of “beating the market.” For too many investors, that ends up being the point of it all. Why? I’m not entirely sure, but I think it has a lot to do with trying to make the client feel like they are “winning” the game. If you are beating the market, that means you must be “winning.”

But in trying to beat the market through stock picking or manager picking, an investor must take on additional risk. Further, studies show that taking on this additional risk often doesn’t pay off….and sometimes it ends in disaster.

Investment disaster! This is what I was terrified of encountering with my wealth….running into an unexpected investment disaster…something that could totally wipe me out.

Broad based stock market indexes, such as the S&P 500, have always rebounded when the market was down. Even at the depths of the Great Depression, broad market indexes never went to zero, and eventually they recovered. Stock brokers often use this fact as a selling tool. They might say, “The S&P 500 has done over 9% per year over the last 80 years. Let’s invest in some stocks.”

Well, for me, 9% average return sounded great. Forget stock picking. Just give me the index. Why would I risk everything my family had saved over several generations to shoot for more return? This is the thinking behind the strategies I use for myself and for clients of Foster Wealth, Inc.

For inheritors of wealth we invest in highly diversified, broad market portfolios. Often we mix in lower risk investments such as government bonds or other highly rated bonds. Why? Historically the returns have been more than ample, and this approach helps remove the huge risk on the mind of inheritors. That is, how do I avoid accidentally blowing everything by mistake.