Why investment execution can be dangerous if it’s not absolutely perfect

There are two things that trip up many investors. The first one is they cannot figure out what they should invest in next (i.e. what investment strategy is most appropriate). Or, secondly, if they have been able to develop an investment strategy, they fail to execute it correctly. These are the two most common hurdles that prevent many people from making the most of their financial opportunities. Poor execution is the most dangerous … let me explain why.

Stuck on figuring out a strategy

When it comes to investing, many people don’t know where to start. Should they invest in property, invest in shares, repay their home loan, contribute additional monies into super or something completely different? There are just too many options. And they know it could be very painful if they make the wrong decision.

People in this situation do one of two things. For some people, it’s easier to avoid making the wrong decision and so they procrastinate. Others will seek out independent advice from a professional they can trust.

You only have to be a little off to miss it by a mile

When it comes to investing, there is no such thing as near enough is good enough. The strategy and execution of said strategy must be perfect. If you are only 5% off being perfect the chances are that you’ll miss out on 50% (or more) of the possible investment returns. You only have to be a little wrong to be totally wrong.

Let me give you a couple of examples of poor execution:

  • Steve works out he should invest in property to build his wealth but invests in the wrong property (i.e. not investment-grade) that does not have the fundamentals to generate strong capital growth. Right strategy, wrong asset.
  • Mary understands the fundamentals of share investing (i.e. diversified, passive investment, low-cost, etc.) but feels the proven strategy is a bit ‘boring’. She adds her ‘twist’ by picking sectors to invest in (rather than the broad market) and, as a result, ruins the strategy (i.e. it fails to generate returns). Right strategy, wrong methodology.

Poor execution is the most dangerous/costly of the two hurdles because investing incorrectly can cost you a lot of money (in lost capital, transactional costs, etc.) and, more importantly, lost time.

Executing an investment strategy is like folding your own parachute. If you don’t get it perfectly right the first time, the consequences are very painful.

There is no room for error

You must nail both the investment strategy and execution. In this regard, we use an evidence-based approach when formulating financial advice. That is, our methodologies and recommendations are rooted in research and historical analysis. Our goal is to help clients develop a perfect strategy and execute it flawlessly.