The buy-and-hold strategy is in question, whether we’re talking stocks or exchange traded funds (ETFs). Now, a growing number of financial advisors can be added to the list of those forsaking the strategy.
The buy-and-hold strategy is simply buying a mix of assets for the long-term, hanging on through the market’s ups and downs. But after a Lost Decade, many investors feel this does not work anymore.
Anne Tergeson and Jane J. Kim for The Wall Street Journal report that the macro-economic climate has shifted, so the investing strategy of many has, too. This has many advisors looking at alternative products and strategies to take the place of buy and hold.
Some advisors are parking money in low-risk investments, such as bonds, along with cash and gold. Some are turning to leveraged and short ETFs to maximize market exposure and raise capital based on daily market movements.
The recent markets have many advisors questioning their faith in long-standing investment principles, such as controlling risk by building diversified portfolios. Instead, they’re turning to exotic investments and products that offer downside protection. Others are trading more actively.
It should be noted that this is a small group of advisors – there are still many who are staying the course, arguing that frequent trading erodes returns and that alternative investments come with some big downsides.
We’ve been pretty vociferous when it comes to how we feel about buy-and-hold. Our strategy is to follow trends to get in potential market upswings; we also have a stop-loss to stop the bleeding when an uptrend draws to a close. While there is more risk in some products than others, ETFs are an affordable easy way to both research and ultimately implement a trend-following strategy.
What’s your strategy? Talk about it in our forums.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.