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Buy & Hold Investors
Perception vs. Reality
Buy and Hold investing is considered by many to be the holy grail of wealth management. Its popularity has become a mantra for passive money managers who prefer to “set it and forget it,” relying on diversification and allocation to protect and grow their money. And those who question this beloved strategy are often derided and dismissed.
Fortunately, more modern minds have proven there is a smarter, more refined path to earning higher returns than buy and hold – with nearly the same amount of effort. And SmartStops has captured that intelligence in its data-driven investing tools to help avoid the big “drops,” to more effectively protect your money and thereby grow it faster.
First, ask yourself – Is the stock market the same as it was 20 years ago? 50 years ago? No, it’s not. Geopolitical turmoil and global economic storms have become the norm. Information and disinformation fly across the internet 24 hours a day. Equilibrium and orderly markets are myths. Investors need to be far more flexible than they have in the past and embrace asset protection in a modern, sophisticated way that can counter these more and growing volatile forces.
Buy & Hold investors spend large periods of time recovering losses and not compounding wealth.”
The old approach of Buy and Hold encourages investors to just ride the ups and downs in the market. “Don’t worry,” Wall Street big firms and so-called experts will tell you, “it will eventually recover.” Buy & hold investors are STILL being told to sit back and take the pain, even if that means their portfolios are underwater for years!
But the only thing this approach guarantees is that investors will spend large periods of time recovering losses and not compounding wealth.
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SmartStops can be a crucial loss management tool for investors – giving you the system you need to cut losses sooner and improve portfolio returns.
Imagine if you had sidestepped the downturn of 2000-2001 or 2008-2009 … instead of having wasted five or more years (or worse) recovering your losses. Your portfolio would now be reaching an all-time high!
Still think Buy & Hold is the way to go? Then it’s worth your time to take another minute to digest this next section…
Myths of Modern Portfolio Theory
It’s important to understand some of the inherent flaws in Buy & Hold logic that will make you think twice about this sacred cow of investment strategy, and investigate deeper with an open mind.
Where did Buy & Hold come from?
In the early 1950’s, Modern Portfolio Theory (MPT) was introduced as the break-through investment management process of the century. But in today’s 21st century there are some key shortcomings when it is applied to the reality of investing in today’s world. These shortcomings stem from three high-level assumptions around Modern Portfolio Theory (MPT):
FALSE
Diversified portfolios don’t protect against increases in volatility. When volatility spikes, most asset classes tend to decline in unison, as correlations rise. The diversification investors thought they had quickly disappears. The recent financial crisis clearly showed that just relying on diversifying does not offer sufficient protection during crisis periods.
FALSE
First, it is important to understand that draw downs are occurring much more frequently then one may realize. Second, as your portfolio drops or you lose your unrealized gains, the fact is that it takes that much longer to recover. This is known as the asymmetry of losses.
FALSE
Market growth is not constant as this chart shows you. And we all know that no one can predict the future.
When the USA went off the gold standard in the 1970’s, this has fostered an environment where money can just be printed and markets can be boosted artificially by many non-transparent actors including central banks around the world.
For this and other myths, read this excellent 3rd party white paper.
Start building wealth smarter
Let SmartStops help you put a proven, intelligent risk management solution in place – to give you a distinct advantage over Buy & Hold. Build a plan in advance so you know when to buy , when to sell and when to hedge. Create your own customized portfolio with automated monitoring and alerting that’s built for the modern economic markets. It’s now easy to do far better than Buy & Hold with nearly the same amount of effort – you don’t want to just “ride out” the next downturn again, do you?