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Don't Jeopardize Your Retirement with Buy and Hold Investment Strategies

Since the dawn of the mutual fund era, investment companies and financial advisors have been advising investors to buy and hold. "No one can time the market consistently and effectively," they say, "So don't try, just buy and hold." Proponents of index funds, like Vanguard founder, John Bogle, take things one step further. Because so few managers of actively-managed mutual funds are able to consistently match or outperform the performance of the S&P 500, they recommend that you avoid expensive actively-managed mutual funds and simply invest in a low-cost index fund or portfolio of index funds. 

While the rationale behind their advice makes sense, I believe their advice is reckless, overly simplistic and could jeopardize your income, lifestyle and financial security in retirement.

The BIG problem with buy and hold investment strategies is that they leave your investments and retirement savings exposed to market risk at all times and do nothing to protect your capital during market declines and bear markets. If you're a pension fund with an unlimited time horizon, you can afford to buy and hold because it doesn't matter how long it takes for your portfolio to rebound from a 30% to 50% loss, like many investors experienced in the 2008 bear market. But if you're retired or nearing retirement, not only can't you afford to wait three to five years (or longer) for your portfolio to rebound, you can't afford to lose much more than 10% of your retirement savings because excessive losses could seriously and adversely affect your standard of living and financial security in retirement. If you're retired or nearing retirement, you can't afford to buy and hold.

From 2000 through 2009 (a ten-year period known as "The lost decade for stocks"), buying and holding an S&P 500 index mutual fund would have lost you 9.4%. Over the same time period, our APG (Advance, Protect & Grow) Investment Strategies protected capital and grew wealth. That's why my advice is: Don't buy and hold!  Advance, Protect and Grow!! Our APG Investment Strategies employ a disciplined, systematic and unemotional process to help you capture growth during rising markets, protect capital during bear markets and grow your investments and retirement savings over time, comfortably, consistently and effectively. 

Based on 20 years of experience managing money for affluent individuals and families, I've concluded that the key to long-term investment success is effectively managing risk and minimizing losses. Buy and hold strategies do neither. If you can avoid major losses during severe market declines and bear markets, you'll never have to dig your portfolio out of a big hole just to get back to even. In most market cycles, you are likely to outperform the overall market with less risk just by effectively managing risk in your portfolio and minimizing losses. The concept of risk management is just that powerful.

I'm not alone in my views on buy and hold. In his book, Getting Back to Even, money manager, author, financial news commentator and the host of CNBC's Mad Money, Jim Cramer writes:

"If you had practiced buy and hold over the last decade, you would have gotten exactly nowhere. The results are in and this philosophy has lost more people money than anything save gambling, and frankly, it's hard to see the difference between gambling and deciding to permanently own stock in a company that could change its stripes at any moment. It's investing blind, and investing blind is no different than investing dumb.

I know from personal experience that this mindless "buy and forget"I am no longer using the term 'buy and hold' because that presumes that what you 'hold' doesn't go to zero, wishful thinking in retrospectis a form of recklessness that can no longer be tolerated as a serious way to manage your money."

You may be wondering: If buy and hold is so reckless and could jeopardize your retirement savings, why do so many financial institutions and advisors recommend buying and holding? The answer is simple. When you buy and hold, financial institutions, mutual fund managers and advisors continue to collect perpetual, ongoing management fees. When you sell, those fees stop. Buy and hold is good for them, not you. 

So, from now on, don't buy and hold. Invest with an emphasis on risk management and minimizing losses and you'll be able to grow your investment and retirement savings over time, more comfortably, consistently and effecitvely.

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Rich Winer is the president of Winer Wealth Management in Woodland Hills, CA. Winer Wealth Management is a fee-based Registered Investment Advisor offering comprehensive financial planning services including asset management, insurance, retirement and estate planning. Additional services include investment management, insurance, employee benefit and retirement plan services for businesses.   

Rich works with clients throughout the country, especially in California including Woodland Hills, Los Angeles, Calabasas, Tarzana, Encino, Sherman Oaks, Burbank, Northridge, North Hollywood, Agoura Hills, Westlake, Thousand Oaks, West Hills, Beverly Hills and Santa Monica.

For more information, please visit http://www.winerwealth.com or call (818) 673-1695. 


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Comment   |  6 years, 7 months ago from Woodland Hills, CA