To be or not to be a 80%’er?
Do you know how the the Paretto Principal rule – aka the 80/20 rule works in so many areas of life? The short explanation of the Principal is that 20% of the energy brings 80% of the positive outcomes. If you look around and consider it you will find that it is definitely true that being a 20%er is where you want to live. It is really clear that this 80/20 rule is in full effect in the money management world. Here are 5 quick ways you can know if your assets are working on the 80 or 20 side of the performance ledger…
- You are invested in accounts that use “active” managers.
- You believe or your account managers promote an ability to “beat” the markets.
- You or your selected firm founders – or their investment committee – created the investment philosophy being applied.
- You or your adviser picks stocks that are intended to outperform the others.
- You or your adviser change asset allocation approach based on market measurements.
It turns out that the 80/20 rule is alive and well in the investment business and the statistics definitely indicate 80% of folks and their firms apply a combination of the above process’ – which explains how 80% of folks assets under-perform the markets in the long term. To be a 20%’er requires an interest in and an understanding of the statistical truth of historic investment management results. Consider Nobel Prizes in Economics as a starting point for that journey.
It is also a critical point of emphasis when building your Mastermind Team. Start your team building with a question – are your Mastermind members 20%’ers?