How To Outperform in the Long Run

How To Outperform in the Long Run

Smart investors exercise discipline, which sounds practical and unsexy. They focus on strategies that really work over the long term rather than get caught up in short-term events.

They also understand the work of behavioral economists on topics like overconfidence, recency bias (decisions based on recent events), home country bias, loss aversion, fear, greed, and so on.

Here are some ways to outperform that don’t depend on “beating the market.”

  • Maintain a multi-asset allocation with at least seven asset classes, built on a foundation of reasonable assumptions about growth, risk, income, inflation, and valuation.
  • Sell bonds to fund lifestyle when growth assets are down. This is different than traditional “rebalancing” methods. Your equity percentage might increase as the news headlines are at their worst, but this strategy will help you meet your long-term financial objectives even if you appear to be underperforming during a bear market.
  • Actively harvest tax losses. Make volatility your friend, selling securities that go down and replacing them with similar securities that allow you to earn index-like returns with less taxes.
  • Put tax-inefficient assets in retirement accounts, and put tax-efficient assets in taxable accounts.
  • Never chase performance.
  • Ignore your intuition; the best investments often do the opposite of what “feels” right.
  • Don’t follow the crowd. Even if your intuition contradicts the crowd, seeing these kinds of bets to their conclusion requires a strong stomach, so don’t make too many of them.
  • Keep fees low. Be wary of high fees that promise high returns. Mounting research suggests low-cost index funds perform as well or better than expensive, managed funds.
  • Focus on spending first, saving second, and investing third. Most investors have a spending problem rather than a performance problem.


Keep in mind that everyone’s tolerance for risk is different. Start by knowing yours. The industry has many automated tools to help you assess this, but remember that risk is not just about volatility.

The greatest risk for investors is not being able to maintain their lifestyle, which is why you should hold more growth assets than lower-risk assets. Most investors underestimate their ability to tolerate loss, which leads to panic or fear-driven selling and wealth destruction. I’ve seen it happen to some incredibly smart and successful people.

Effective financial planning is about achieving your goals, living fully, and having peace of mind, not about beating some index which is mostly impossible. Place your effort, time, and money on the former, not the latter.

Ben Johnson
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