It’s hard to do nothing. It’s hard to disconnect from a connected world. If you have children, you’ve probably heard them say: “I’m bored; there’s nothing to do!” If you want to see how hard it is to do nothing, turn off everything around you, and close your eyes for ten minutes. Welcome back. How’d you do?
The most challenging investment strategy is the buy and hold model, a strategy that relies on making a few changes to your portfolio over time. You do nothing but sit and wait for your investments to perform. It’s easy to do nothing when stocks rise as they did in 2019, but how about now? It takes courage and conviction to hold your shares during a market rout like we’re currently experiencing.
A buy and hold strategy is boring, and it’s not sexy. Tell people you own a diversified portfolio of index funds that you plan to keep forever, and they’ll roll their eyes. Warren Buffett said that people don’t like to grow rich slowly. If you read the tortoise and the hare, you know slow and steady wins the race.
Several years ago, I worked with a broker who told me he periodically bought and sold stocks to give the appearance he was monitoring his client’s accounts. His activity “strategy” benefited him more than his clients because he generated a commission with each trade. Activity for activity’s sake is not a strategy.
Pursuing get quick rich trading schemes often end poorly. However, people are attracted to the possibility of day trading their way to riches, especially when market volatility is high like it is now. It appears easy to buy when the market falls 10% and sell when it rebounds 10%, but this is only in hindsight.
Investors get antsy when their portfolio isn’t rising. When turbulence hits, they run for the exits. During the fourth quarter of 2018, investors pulled $133 billion out of the stock market just before it started rising again.
During the previous bull market (2009 to 2020), the S&P 500 rose more than 160%, including yesterday’s 12% drop. The one-month U.S. Treasury Bill considered the safest investment in the world, lost money every year since 2009 when adjusted for inflation.
Of course, there are times when you need to sell your investments or make portfolio changes. Using your funds to generate monthly income or pay off a mortgage is undoubtedly warranted. Rebalancing your account to keep your asset allocation intact is recommended.
A financial plan can help you improve your investment results and give you the necessary tools to stay invested during falling markets. It will provide you with a roadmap on how best to spend your hard-earned dollars by aligning your goals and risk tolerance to your portfolio. Your plan will be your antidote against making poor investment decisions.
Give it a try – do nothing!
The trick is, when there is nothing to do, do nothing. ~ Warren Buffett
March 17, 2020
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management located in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.