Buy and Hold Time?
A Buy and Hold Strategy you say? We have all seen the movies. In our American Capitalist system we make a fortune by hustling and doing lots of busy hard stuff. The brokers are holding 3 phones and barking orders with sweat protruding from their brows. The hero is hustling hard in the streets to overcome adversity and succeed! They are probably not advocating a buy an hold strategy because they would not get as much from commissions doing that!
All good stuff, but is this the way to manage a portfolio of investments?
Is It True?
Is this a clear depiction of how wealth is built or is this mainly fiction? I still believe hard work and ingenuity pays off. And there is nothing wrong with hustling, trying, striving and experimenting. It makes life more exciting and interesting to try hard and discover new things. These are the actions that have made America great and moved us ahead in so many aspects of human existence.
But perhaps it is time to chill when it comes to our investments and just go with a simple buy and hold strategy?
But What if There is a Recession?
The probability of some kind of recession is growing. But is that really reason to panic if one has a diversified collection of assets that is tailored to their specific risk tolerance? I would say if someone has a great fear of a recession and stock market drop, they probably do not have their asset allocations right.
De-Risk
Here at Money Vikings we have been de risking for over a year as economic winds changed. But this did not mean sell everything and load up on ammo. This was about making sensible re-balancing and de risking moves. For example, moving into asset classes that do better during recessions (consumer staples, healthcare, etc.). Adjusting to hold a little more cash than usual and adding some high quality bonds. One can still use a buy and hold strategy, and adjust their portfolio a few times per year to make sure they have a proper asset allocation.
Market Most Likely Will Fall
When the market does fall, this can be seen as an opportunity. In fact, it might be one of the best things that can happen for our long term wealth building. This is one premise of our INVESTING TRIFECTA TO BUILD WEALTH.
Media Circus?
Remember, information is critical, but the main stream media is there is glue eyeballs and see advertising. There is nothing more to it. Why do we watch the Gwenyth Paltro ski trial? Not because it did anything to help our country move forward and become stronger!
The financial media has to sell advertising as well. Therefore they need to focus in on the most dramatic economic news of the day. For options traders and others they can capitalize on this split personality disorder. But for long term prudent investors, this can be really bad signaling.
Lazy Strategy? Is it Really just a Buy and Hold Strategy?
Get to know Richard Thaler! He could make you rich.
Richard Thaler is an American economist who won the Nobel Prize in Economics in 2017 for his contributions to behavioral economics. Thaler is known for his work on the concept of “nudge,” which involves designing policies that encourage people to make better choices for themselves without limiting their freedom of choice.
In his book “Misbehaving: The Making of Behavioral Economics,” Thaler offers some investment advice for the average person that he calls “lazy investing.” The idea behind lazy investing is to set up a portfolio that requires minimal effort to maintain and offers good returns over the long term.
According to Thaler, the lazy investment strategy involves:
- Invest in low-cost index funds: Instead of trying to pick individual stocks, Thaler recommends investing in low-cost index funds that track the overall performance of the market.
- Diversify your portfolio: Thaler advises spreading your investments across different asset classes, such as stocks, bonds, and real estate, to reduce the risk of losing money.
- Rebalance your portfolio regularly: Over time, some investments will perform better than others, which can throw your portfolio out of balance. Thaler suggests rebalancing your portfolio once or twice a year to maintain the desired mix of assets.
- Stay the course: Thaler emphasizes the importance of staying invested for the long term and not getting spooked by short-term market fluctuations. By sticking to a well-diversified portfolio of low-cost index funds, Thaler believes that investors can achieve good returns over the long run with minimal effort.
Buy and Hold Strategy?
Deciding whether to use a buy and hold strategy stock funds depends on several factors such as your investment goals, risk tolerance, investment horizon, and current financial situation.
If you are investing for the long term (i.e., 10 years or more), have a high risk tolerance, and are comfortable with market fluctuations, then holding stock funds could be a good option. Historically, stock funds have generated higher returns compared to other asset classes over the long term. However, it’s important to keep in mind that past performance does not guarantee future results.
On the other hand, if you have a low risk tolerance, a shorter investment horizon, or need the money in the near future, then holding stock funds might not be suitable for you. In such cases, it may be better to consider more conservative investments such as bonds or money market funds and consider those part of your buy and hold strategy.
It’s also important to diversify your portfolio by investing in a mix of asset classes to reduce the risk of losses. Therefore, you may want to consider investing in a mix of stock funds, bond funds, and other asset classes that align with your investment goals and risk tolerance.
Ultimately, the decision to hold stock funds should be based on your individual circumstances and investment objectives. It may be helpful to consult with a financial advisor to determine the best investment strategy for you.
How About The Best of Both Worlds? (Be a flexible investing Jedi)
There is no rule of investing and building wealth that says we can’t do both: use a buy and hold strategy and also be active. That is exactly what we personally do at Money Vikings. Yes, we a utilize buy and hold strategy. Investments, compounding, dollar cost averaging, DRIP programs, etc. need time. These forces cannot be harnessed in a week or month.
On the other hand it can be fun to take some small portions of a portfolio and try some riskier assets. Why not have a separate smaller account to day trade a bit to get the urge out of the system?