7 ways you could be sabotaging your investment portfolio

So it turns out fat is good for you. Oops, never mind, it’s unhealthy again.

I actually envy the people who write diet books instead of ones about investing like I just did. At least the advice changes every few years, encouraging people to go out and buy another book.

Oh, sure, there’s always a theme for talking heads to tout — the fat, coffee and red wine of financial markets. Energy, China, the strong dollar, gold, dividends and small caps go from being red hot to hazardous to your wealth and back again. But truly good investment advice is remarkably consistent.

Those winning money moves are the least surprising thing you’ll read in my book, «Heads I Win, Tails I Win: Why Smart Investors Fail and How to Tilt the Odds in Your Favor.» The shocker is all the ways people sabotage themselves and how huge the gap is between their nest eggs and what they could and should be.

If I were a betting man I’d make a wager with each person reading this that the techniques I outline have performed better than whatever they’ve been doing with their nest egg over the last decade or so. It seems like I’d be setting myself up for a fall because only those people who have done well would take me up on my offer — the crème de la crème of Marketwatch readers, as it were.

The very best piece of advice I can give you is this: be cheap and lazy.

But the odds are very good not only that you’re lagging a passive market return but that your estimate of your own track record is way, way off. In one study, investors overestimated their annual returns by a whopping 11.5 percentage points a year. It’s strange but true.

Here’s an even weirder thing. The easiest technique to closing that yawning performance gap is the one people are least likely to stick with for the long run.

It’s like your trainer at the gym promising you washboard abs if you only spent more time on the couch eating potato chips.

The very best piece of advice I can give you is this: be cheap and lazy. Passive, low-cost index funds rebalanced regularly are the right choice for almost everyone reading this.

Why is getting people to take good financial advice an even bigger challenge than getting them to be healthy? It isn’t because they’re dumb. In fact, as the subtitle of my book suggests, smart investors routinely fail. The smarter you are the more you want to show your stuff investing. I get it: It’s the ultimate contest of wits and the prizes are for real money. A fallacy called the «illusion of control» makes us believe that we can affect the outcome because taking charge in other parts of our lives gets good results. But, unfortunately, the evidence shows that, the more decisions you make as an investor, the wronger you are.

Another problem is that «cheap and lazy,» while it definitely works, doesn’t work like magic. If people started to diet and exercise and gained 20 pounds before the results began to kick in then they’d be even more likely to give up. Unfortunately, it happens more often than not. Investing can create fantastic wealth, but there’s no magic formula to eke out a good return in the short run.

If I find one I promise to write another book and let you know all about it — just as soon as I’ve made my millions, that is. Meanwhile, the best advice I can offer is still good enough to help a typical investor potentially double their nest egg by just earning a decent market return, and that’s not too shabby. In addition to being cheap and lazy, here are my tips:

Know yourself: Most people earn lousy returns and don’t realize it or don’t know why. Face up to that fact and to the habits that contribute to it.

Stop zigging when you should zag: The largest portion of the underperformance come from hyperactivity. Reacting to news will leave you trying to catch up in the long run.

Don’t confuse luck and skill: There are very few bona fide investing superstars and your odds of finding one are tiny. Giving someone your savings because they have a great track record is usually a mistake because they probably just got lucky and aren’t worth their fees.

Turn lemons into lemonade: Surprisingly, it isn’t bear markets but their aftermath that are most costly for investors. Many pull back from risky investments and then get back in after the best returns have been realized.

Don’t be a seer sucker: It’s tempting to hitch your wagon to a market expert with a supposedly amazing track record. Unfortunately, extensive research shows that the advice of a leading financial forecaster is slightly worse than flipping a coin. We tend to follow those purported seers who are most self-confident rather than those who are most accurate.

Don’t treat the market like a money machine:There is nothing predictable about it in the short or even medium term. The most successful investors accept that short-term setbacks are part of the bargain in long-term wealth creation.

Don’t be afraid to ask for professional help, but only as much as you need: Financial planning is hardly cheap, but doing it on your own can be penny-wise, pound foolish for those prone to panic or exuberance.