Buy & Hold Dead?

You've heard this and probably wondered if it was true since a lot of so-called financial experts have been saying it, buy and hold is no longer a valid investment strategy.

Buying and holding any investment for an exceptional length of time is certainly not a wise strategy except in certain instances such as art, rare coins, stamps, vintage autos, rare books and those painted 'collectible' dinner plates of dead Presidents advertised on late night cable. Okay, I'm kidding about those china dinner plates; but buy and hold being dead for mutual funds, stocks and exchange traded funds, which is what the new age market soothsayers are talking about, is something of a misdirection.

The hidden issue is not that buy and hold is dead it is that the so-called experts want you to sell your mutual funds, move all your assets to their side of the fence and buy ETF and index funds while they charge you a fee for this service.

In order to do that they need to convince and scare people to move money around. If this wasn't so sad it would be funny. They are telling investors to cash out active managed mutual funds to buy index funds. The fact is that the plain vanilla mutual fund that the self-crowned experts are telling you to sell is an active managed investment vehicle while the majority of ETFs and all index funds that they are telling you to buy are static. How can you confirm this? Simply check a Morningstar report by either going on-line, visit your local library or calling your fund company for a report and check the 'turnover' percentage. You'll be stunned to discover that some active mutual funds have a 100% turnover, meaning the total assets of the fund are bought and sold over the course of a year's time. You have to ask yourself how anyone of reason label active managed mutual funds with a turnover like that a buy and hold investment? The answer is to scare the uneducated.

The index and ETF funds change holding very little over the course of a year or two. These are the true buy and hold vehicles. They will only vary as some stocks are added and others deleted by definition of the index or sector but these are small modifications and do not make these active managed funds.

Buying and holding individual stocks for 10-20 years or a lifetime can be a smart move or financial suicide depending on what you bought, what you paid and why you bought it. Let's say you bought an automotive company stock and over the years the stock rewarded you with dividends and splits and you made a very tidy paper profit. At some point the stock either starts to stagnate or drops in value, perhaps the company even stops paying a dividend. Holding this stock and watching your gains go swirling down the drain is not a smart option. Why lose all your gains? Depending on where you hold the stock (price paid) and what account either retirement or individual, the time may be ripe to take some if not all of your profits, Buy and hold for some individual stocks for a lifetime may never make sense.

Let's put things in perspective. There is nothing wrong owning ETFs, index funds and mutual funds along with individual stocks. There is no rule that says you shouldn't. You'll get active management on one side plus indexing in specific sectors to round off your portfolio. Not taking advantage of all the tools to grow and keep your savings is just silly.

The next time someone in the investment business tells you that buy and hold is dead ask to see their portfolio and what they own. You may be surprised that what they own is exactly what they're telling you to sell.