Trusting Yourself With Buy and Hold Investing
Jason Zweig of the Wall Street Journal recently wrote an article ‘Will We Ever Again Trust Wall Street?’ that brilliantly steers one to consider employing a buy and hold investment strategy over an actively managed portfolio. “Buying and holding a diversified stock portfolio still makes sense. Paradoxically, as fewer people cling to their faith in traditional stock investing, the future rewards from it are likely to grow greater.”
With the way things have played out on Wall Street in the last two years, now might be a great time to reconsider your investing strategy and turn to a buy and hold strategy that provides for diversification and less risk than individual stocks. Look to index funds and exchange traded funds to build a low cost, globally diversified portfolio using asset allocation. Just think of all the time you will have in your day for other things. With all the time currently spent chasing the market, now you can quickly and easily buy and hold index funds and spend a fraction of the time rebalancing your portfolio. Better yet, if you choose to utilize one of the on-line portfolio management tools out there, like one offered by marketriders.com, monitoring and rebalancing your portfolio, to keep it in check, is a breeze.
Who better to trust with your own money than yourself!
Municipal bonds safe bets?
You might be able to make good money from municipal bonds — if you can stomach the risks. Let’s start with greed and move on to fear. You don’t normally associate greed with a municipal bond, which is a long-term IOU issued by states and other local government entities. Munis pay regular interest and return [...]Devon Energy is Ripe
Devon Energy (NYSE: DVN) is refocusing itself. Non-core holdings are being shed, and the proceeds are being used to accelerate growth of the company’s premier North American assets. Devon grew up as a company in the natural gas shale plays of the Midwest. Through superior technology, a focus on cost discipline, and a consistent track record, [...]Defense is best offense
Many Main Street investors have yet to regain their stomach for the risky, uncertain and highly volatile world of stocks. Many buy-and-hold investors have unwittingly switched to a “buy-and-fold” strategy. Individual investors who once embraced risk-taking have adopted a more defensive investing posture, preferring capital preservation over appreciation. Many are trimming the percentage of stocks they [...]Rattled Investors
The US unemployment rate dropped sharply last month, but employers continued cutting jobs in January as businesses remained insecure about the economic outlook. The jobless rate fell to 9.7% from 10% in December, the Labor Department said Friday, because its survey of households found more people landed jobs than entered or returned to the labor market. But [...]Ring of Fire
U.S. stock investors don’t know where to take cover with the constant market swings. Reeling from four straight weekly losses, are entering the coming week’s market torn between confidence in the global economic recovery and fear that foreign governments’ actions will bring the rebound to a sudden halt. Investors have looked at the two sides and [...]Investing for Beginners: Avoid the Tempting Scams
Investing for beginners, as well as those more financially savvy, can oftentimes be a daunting task as there are many investment choices and unfortunately many schemes making promises that can’t be kept. As recently exposed in an article in InvestorsInsight.com ‘Record Year For Ponzi Schemes’ investors are oftentimes lured in by investment schemes that are just ‘too good to be true’. “It’s not because they are unsophisticated, since Bernie Madoff’s client list was a virtual who’s who of the rich and famous, many of whom had extensive investment knowledge and experience. Instead, scam artists use well-known emotional triggers to get you to invest.”
“If it sounds too good to be true, it probably is.” Instead, I encourage serious retirement investors to stick with the strategy used by the world’s best investors. Focus on asset allocation, globally diversify, keep fees down with indexing, and rebalance to stay the course. For many that have gotten caught up in a Ponzi scheme or know of friends that have, now might be the perfect time to take matters into your own hands and start to manage your own investments. Many of the tools available today will guide you on how to invest your money with the goal of generating the most returns for retirement, accounting for risk and time frame, at a low cost. Try reading several Investing 101 articles that are out there as they are loaded with lots of great tips on finding the best investment vehicle for you.
Asset Allocation vs. Tactical Allocation – Know the Difference
Asset Allocation is being mistaken form tactical allocation. “It’s the financial fantasy for a post-crash world: Wouldn’t life be grand if you could own one mutual fund that invested in domestic and foreign stocks, bonds, cash, real estate, commodities and currencies, freely shifting investments among categories to take advantage of opportunities, and avoid meltdowns?”
Well, of course it would. Fund companies, including PIMCO, Legg Mason, and Van Kampen, say they’ve got just the thing for you: They are called tactical asset allocation funds, and a new one seems to roll out daily. Don’t believe the pitch. No manager can predict the future of one asset class let alone multiple ones. Yet terrible odds have not kept these new funds from becoming the trendy way to invest. So what is technical asset allocation and why is it dangerous?
How It Works
Tactical allocation requires managers to predict which asset classes will lead and which will lag, and then to own securities that will benefit. Needless to say, they don’t always get it right. But that doesn’t stop some of them from charging high expenses or keeping their investing strategies opaque or both. This approach may sound like market timing, the discredited investment strategy of jumping in and out of a market to catch upswings and avoid downturns. But tactical fund managers prefer a more nuanced explanation of their approach. They typically hold a wide range of assets, overweighting classes they find most appealing and underweighting ones they consider overpriced or otherwise undesirable. Some choose allocations based on technical indicators, others on fundamentals. Sounds great, doesn’t it, but unfortunately it simply does not work over the long-haul. Portfolio diversification, however, is an investment strategy employed by leading institutions and endowments and is a great approach for retirement. Unlike tactical allocation, asset allocation focuses on using low-cost, tax-efficient index funds in specific target percentages that are rigorously maintained through rebalancing as markets shift.
Why It Is Dangerous
Research conclusively demonstrates that only a small percentage of managers will beat any one index in any given year. When you examine fund managers’ performance vs. the index out ten years, the winners drop into the low single digits. Now imagine asking a fund manager to not beat one, but four, five or six indexes all at the same time. Statistically, your likelihood of success drops into a fraction of one percent – probably not the best bet for your retirement.