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Buy 'Em, Hold 'Em, or Fold 'Em?
Ray Johnson, CFP
August 2006
How should you be investing your money these days? Markets seem to be moving up and down a lot but going nowhere fast. The talking heads on television now seem to think that buying and holding investments is not working and that timing the market is now the "in" thing to do.
One of my concerns as an investment adviser has been to develop a successful long-term discipline based on sound investment principles and then watch as the media proceeds to violate those sound principles in the name of entertainment and ratings. The time proven and often quoted keys to long term investment success are and always will be:
- Diversify
- Hold for the long-term
- Keep investment costs low
The problem with this soft-spoken strategy is that it does not sell magazines or keep a television audience tuning in each evening to learn the latest secrets to getting rich. Probably one of my biggest frustrations is the American public's short memory span. Why is it that we learn and remember as children that touching a hot stove is uncomfortable, so we stop doing it. On the other hand, we listen to investment gurus spouting out theories to investment success day after day but never seem to learn or remember that the theories they spouted yesterday did not work, so maybe if we listen closer, today's will be better.
Will Rogers had a simple theory, "Buy stocks that only go up. If they don't go up, don't buy them." My theory in today's markets is, "Buy stocks and stock mutual funds that you are prepared to hold onto for a minimum of ten years. If you can not hold on to them for ten years, don't buy them."
Here is another way to think of our market strategy we have been following since the beginning almost eleven years ago:
Do not time the market which you have no control of. Take charge of what you can control and time your financial needs instead. Make sure that all funds you require from your investment portfolio for the next ten years are out of the stock market and available to you when you need it. Money you keep in the market for long-term growth should be diversified and held in low-cost investments. When buying stocks, favor stocks that pay dividends and reinvest those dividends so that in periods of low stock prices, the dividend acquires relatively more shares. |
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