Buy and hold does not mean ‘ignore’
In my workshops, I get a lot of people that come and ask me investment questions. Here’s a conversation I had in one of the very last workshops of 2010:
Sarah asked “My investments have not been good to me. I don’t think I’ve really gone anywhere in the last 10 after my divorce. The portfolio seems to be at about the same place it was a long time ago and I am wondering what I should to about my portfolio?”
I answered her question with a question, “What investments do you hold?”
Like most people I talk to she did not know, “I don’t know, my advisor takes care of that.”
A recent study by the Bank of Montreal supports my experience with investors. The study suggests that 70% of Canadians do not know how their RRSPs are invested. Although this is a very sad statistic, it does not really surprise me because I see it first hand.
What causes people to detach from their investments?
In my line of work, where I put Group RRSP and Pension Programs into the workplace, we see another discouraging statistic where people don’t look at their investment statements. Typically less than 20% of people go online to look at how their investments are doing despite the fact that these websites have a wealth of information.
Why are so many people disengaged from their portfolios? Is it because of markets? Maybe . . . studies also show that when markets are going up people tend to look at statements more than when there is bad news hiding in the envelope. Is it because we are too busy? We are all busy people these days and if there is no immediate need for money, then it’s much easier to ignore it and deal with it later. Is it because we don’t understand the statements anyway? I must admit I hear this a lot but if you never look, you will never learn.
Buy and hold does not mean ‘ignore’!
When I first came into the business 20 years ago, I was taught the merits of buy and hold investing. Buy something and despite the ups and downs of the market, never sell it. We are often reminded of the ‘Buy and hold’ strategy when markets fall because it’s harder to do then. It’s much easier for investors to hold when their investments are going up.
I’m much more knowledgeable than I was 20 years ago and because of that, I am not so sure that buy and hold should be the primary strategy for investors. I’ve written about why to buy and hold does not always work. I just don’t agree with the underlying belief that people should by something and forget about it over the long term.
Don’t get me wrong, I think there are a time and place to buy and hold. For example, in a recent article, I wrote on dividend stocks, there were a number of comments from some really intelligent investors who felt that long term, it’s better to buy and hold their dividend-paying investments. I don’t disagree, I just want to make sure that people don’t disengage from their portfolios through a buy and hold strategy. Arguably, this may be one of the biggest risks to investing.
If you practice the buy and hold strategy or even use advisors that help you make decisions, you should still review your portfolio from time to time. Don’t ignore your portfolio. Your money is important to you!