Why Most Wealth Plans Never Survive Time in the Market

If you’ve written out your investment plan, you’re already a big step ahead of most investors. However, in many ways planning is the easy part.  

What separates investors who build serious wealth from those who merely intend to is what happens when markets stop cooperating by delivering consistent performance. It’s when that left-field event knocks 20% off global equity markets and causes everyone you know to turn bearish. 

This is when a plan must meet the harsh realities of investing. It’s also when most wealth-building strategies get made or broken. 

Mind the Gap 

The evidence supporting how challenging most investors find sitting tight during market selloffs is remarkably consistent.  

To that point Morningstar's 2025 Mind the Gap study, which tracks the difference between the returns a fund reports and the returns investors actually capture, found a gap of 1.2% p.a. over the decade to December 2024, with the average dollar in managed funds and ETFs earning around 7% p.a. versus an aggregate fund return of 8.2%. 

That glaring gap is driven by the timing and size of investors' own buy and sell decisions, particularly their decisions to sell during market selloffs. 

It is a costly challenge. It’s estimated to cost investors a hefty 15% of their funds’ total returns.  

It’s not that investors are picking bad funds.  

It’s that they are buying more when markets feel good and they are selling when they feel bad. 

In other words, they’re doing the opposite of what an effective investment plan demands. And they are sacrificing their performance in the process. 

What Battlefield Conditions Look Like 

We’ve all been there. 

We invest in funds and ETFs with the best of intentions. We intend to own them for many years, no matter what. After all, the long-term data shows that we should expect a high single-digit return on an annual basis from our global equity exposure. 

If only markets worked like that. 

But they don’t. 

Three occurrences consistently pop up to expose the difference between a plan and a system:  

1. The first serious drawdown.  

Most investors never forget navigating their first bear market. A 15% to 20% market decline is where investors’ resolve tends to get tested. It feels like it’s going to last forever. It also makes you feel foolish for investing before markets declined.  

This is when investors without predefined rules tend to make emotional decisions they later regret. 

2. A change in personal circumstances.  

One of the great truths of life is that change is always happening. 

Even if you don’t expect it, some of your shifting personal circumstances can and will affect your investment perspective. 

For example, a job loss, a health scare or an unexpected major expense can force you to make a portfolio decision under stress. As sod’s law would have it, these events tend to occur at the worst possible time to be selling. 

3. A run of underperformance. 

Watching one part of your diversified portfolio lag for a year or two is uncomfortable.  

This when many investors tend to abandon diversification as a strategy in favour of chasing whatever has recently done well. 

The truth is these conditions are the ordinary texture of investing over any multi-decade horizon. This is the timeframe most wealth-building plans are built around. In other words, you should be ready for these occurrences in advance. 

Turning Intention into a System That Keeps You Invested 

The practical fix to navigating the realities of battle lies in removing as many potential decision points from your control as possible. 

Here are three strategies to help with that: 

1. Automate your contributions.  

Recurring, automatic contributions into a diversified portfolio, sometimes called dollar-cost averaging, mean the decision to keep investing is made once, in advance, rather than repeatedly under pressure.  

This approach removes the need to correctly time markets, which even professional investors struggle to do consistently. 

It also helps keep investors true to their investment plans.  

By buying when markets are rising and falling, you’re extracting yourself from the treadmill which so many investors find themselves slaves to; the one which leads them to do exactly the same as the rest of the herd. 

2. Write out your rules for when to sell while markets are calm.  

A simple, written statement of what you will and will not do in a downturn, decided before a market downturn eventuates, is a genuinely underused tool for everyday investors.  

It enables you to turn a future emotional decision into a present rational one.  

3. Build real diversification into the structure of your portfolio. 

Diversification will allow you to reduce your downside risk during future market selloffs. This is because defensive asset classes like fixed income and gold tend to decline less risk assets are correcting. 

Genuine diversification means spreading your portfolio across multiple asset classes, including listed and unlisted markets, fixed income and growth assets, rather than a collection of similar ETFs that happen to have different names. 

Small Consistent Steps Win This Race 

An effective wealth-building plan is only as useful as the system that enables it to survive its first real test. This is why it’s vital to create a robust system from the get-go. The measurable cost of poor timing, the behaviour gap, is running at 1.2% p.a., equivalent to some 15% of total returns. 

Automating your contributions and writing your decision rules out in advance shifts choices away from moments of maximum stress. Genuine diversification is a structural decision, not a hoped-for outcome. 

Disclaimer: This article is prepared by Simon Turner. It is for educational purposes only. While all reasonable care has been taken by the author in the preparation of this information, the author and InvestmentMarkets (Aust) Pty. Ltd. as publisher take no responsibility for any actions taken based on information contained herein or for any errors or omissions within it. Interested parties should seek independent professional advice prior to acting on any information presented. Please note past performance is not a reliable indicator of future performance.