Interest on cash is so little, then take off tax and less inflation, and the result is actually a loss.
Put another way, you keep $20,000 in cash to upgrade your car, or roof, or teeth. After three years you might have $21,000, but the cost of the car, or roof, or teeth is now $25,000.
No.2 STOCK PICKING AND FORECASTING
Dalbar research in the US often comes up with fascinating data.
An investor who bought and held S&P 500 shares in the US (a passive index fund) from 1986 to 2006 would have averaged 11.8 per cent return a year. This is without any special knowledge at all - just simply buy and hold the S&P 500 index fund.
Individual investors from 1986 to 2006 actively trying to buy and sell the right shares over the same period averaged only 4.4 per cent a year.
More recent research from Dalbar came up with much the same figures - people who stock pick and forecast often get 50 per cent less than simply holding the S&P 500 index (or the ASX 300 or the NZX50).
Fear and greed " the DIY investor's biggest enemy Fear and greed play a big part in investment success or failure. When things are profitable, DIY investors often get bold and greedy, and eventually lose. Or they get fearful on a market dip and sell out, when holding long term would have worked out.
It's been fairly easy to make money DIY in NZ shares over the past few years, but nothing goes up forever, and eventually reality bites.
The antidote to fear and greed is discipline, rebalancing and diversification.
George Soros
George Soros made fame and fortune in 1992 when he made $1 billion betting against the British pound sterling. But then in 2011, he lost $1.5 billion when his biggest picks didn't work out and he sold at the wrong time. His forecasts and timing were both off.
No.3 TRADING CURRENCIES
There seems to be a never-ending supply of organisations selling FX (Foreign exchange) trading systems.
FX trading is regularly promoted as a "get rich quick" scheme with numerous testimonials from individuals who have been able to leave their jobs and "trade successfully", but the reality is quite different.
The French regulator AMF looked at 15,000 active traders over four years and found:
-89 per cent of clients lost money
-The average loss was almost $28,000
-Total losses were more than $300 million
In the US, research showed that 72-79 per cent of customers at two of the largest FX platforms executed losing trades.
Looks like the old 80/20 rule - 20 per cent of the traders made 80 per cent of the money.
Another report reckoned the average life of a retail FX trader was four months.
It's actually worse than it sounds as most FX trades are heavily geared - and although gearing maximises gains, it also maximises losses.
Sometimes the losses are so great they not only wipe out the retail clients, in some cases they wiped out the firms providing the FX platform as well.
The people who make real money in FX are the top brokers, and to a lesser extent, the people who sell trading systems to the public.
