Buy and Hold May Be Dead. Does Your Financial Future Need to Die with It?

By Branden DuCharme

If you are amongst the vast majority of Americans that depend on your 401(k) or IRA as a major portion of your approach to retirement, you have likely seen the brutal reality of buy and hold investing play out for you in real time this year as you have checked your statements with market bottoms so far this year between 20 percent to 30 percent down.

Many people are recommended a traditional “60/40” portfolio (60 percent stocks/40 percent bonds) when they near retirement and need to limit risk. It is derived from the theory that as stock prices decline, money in the market should traditionally flow into bonds. This would then offset part of the losses on the 60 percent side of the portfolio by making a gain on the 40 percent side.

This year, however, due to rising interest rates in response to inflation, we have seen bonds take a beating, too. Depending on the index you track, your bond positions could be down more than 8 percent. So as the stock side of the portfolio has experienced the loss, not only has it not been made up for on the bond side, the bond side lost value, too! Not an ideal scenario for folks preparing for or already in retirement.

If you thought understanding the loss was the pain, think again. Imagine that you checked your statement in Q1 and saw that there was a loss—recoverable, but still a loss. Now you have checked Q2. Not only is there another loss, you also have the exact same investments. Why is that? It is a result of traditional buy and hold theory, and it may just be a failure of the financial industry to adopt innovative technologies that allow for better investment management. A

Active investment management is derived from the idea that markets and economies shift and change, so your investments ought to as well. There are numerous theories or schools of thought about active management, but the bottom line is this: we live in a modern world, with modern technology. An active investment manager can leverage modern technology and expertise for your benefit.

Gone are the days of faxing in a trade order. My late grandfather was the first investor and trader in my family. The way he invested made sense sixty-five years ago, and he was quite successful at it. However, he didn’t have the internet. With modern technology, it only makes sense that your investments should be able to tactically move in and out of the market in order to limit your risk. Consider this: by limiting 50 percent of the downside and capturing 80 percent of the gains, you’ll experience 35 percent better performance.

Ultimately, there are many methodologies to investing and portfolio management. There isn’t a method that is ideal for everyone. We are all our own individuals with our own psychologys, investment objectives, and risk tolerances. However, what I can say for certain is that I believe doing the same thing and expecting a different result is silly. If you aren’t happy with the results you’ve had, it may be time for a change.

Advisory services offered through Global View Capital Management, Ltd. (GVCM). GVCM is a SEC Registered Investment Advisory Firm headquartered at N14 W23833 Stone Ridge Drive Suite 350, Waukesha, WI, 53188. Branden DuCharme is an Investment Advisor Representative with GVCM. GVCM is affiliated with Global View Capital Advisors. Supervising office at 262-650-1030. Additional information can be found at: https://www.advisorinfo.sec.gov/IAPD/.

About the Author

Branden DuCharme is an investment adviser representative with GVCM, a SEC registered investment advisory firm.