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09/29/2004
Buy and Hold Hammers Retirees
Financial Industry Fails To Recognize Danger
It’s time someone stands up and says it: The Buy and Hold philosophy of investing is inherently dangerous for those who are retired or near retirement. It is responsible for literally millions of retirees being forced to go back to work. Yet the Financial Services industry, whose profits are built on the Buy and Hold philosophy, refuses to make changes necessary to better serve these investors.
Let’s face the facts. Someone who invested $100,000 in an S&P 500 index fund at the beginning of 2000 and left it alone would have less than $78,000 today, over four and a half YEARS later!
Invariably, investors called their brokers because they were concerned about their money losing value. Almost every time they heard the worn out mantra, “Just hang in there, it‘ll come back.”
Sure, but how long will the investor have to wait? Five years? Ten years? That may be fine for someone who is 20 or 30 years old and is saving for retirement. But people who’re retired can’t forgo a return on their investment for 10 years!
For most of them, the gain off their nest egg is what supplements Social Security. They depend on their nest egg to maintain the comfortable lifestyle they worked and sacrificed so long to achieve. It’s the money they use to travel and buy gifts for their grandchildren.
What’s more, they’re tired of standing by and watching their broker do nothing while they lose 30% of their hard-earned money. Because their financial advisor failed to take action, they’re the ones paying the price.
I speak with people all across the country that are retired. Each of them feels BETRAYED by their financial advisors. They are frustrated that their brokers just don’t get it—the brokers don’t understand.
Here’s just one example: If you tell a broker that you want your investment to go up when the market goes up they consider you a growth-oriented investor. The way they see it, if you want an investment that has the potential of going up 20% in the good times then you’ll also be comfortable with that same investment going down 20% during the bad times.
That’s not what my clients mean when they say they want their money to grow! They mean they want their money to go up in the good times but they don’t want to lose it during the bad times. The industry sees that as you changing your objective. I see it as common sense!
The fortunes of the financial services industry depend on the Buy and Hold philosophy. It is to their advantage that investors believe and follow that philosophy. If investors don’t, it could force the industry to have to change the entire way it does business.
Currently, the people who manage your money are separated from you by the people designed to sell you investment products. That’s the problem. You expect your broker, agent or advisor to watch your money and to make changes to help you protect it in the bad times. That’s not their job. They aren’t trained to make those decisions. In fact, the efficiency of the system is based on them NOT making those decisions.
If you believe in Buy and Hold then your broker, agent or advisor doesn’t have to know how to manage money. If you believe in Buy and Hold, the broker, agent or advisor doesn’t have to spend time watching your portfolio. Instead, they focus on selling product. Unless the financial services industry recognizes the extent to which investors are dissatisfied, they risk alienating the very people they are supposed to serve.
Innovation isn’t dead, though. For instance, my firm has developed solutions designed to grow wealth during the good times while significantly limiting the potential for loss. We’ve invested tens of thousands of dollars developing proprietary systems that allow us to manage your money. Our approach is so unique that 5 Patents are pending before the U. S. Patent and Trademark office.
So, if you’re retired, beware of the Buy and Hold philosophy and those advisors who follow it. It’s your money and lifestyle at risk, not theirs.
Do you have a financial question? Contact me for clear, unbiased advice free of charge.
Mr. Voudrie is a Certified Financial Planner™ Professional, nationally syndicated columnist and the President of Legacy Planning Group, Inc., a Private Wealth Management firm in Johnson City, TN. For more information call 1-877-827-1463 or email
jeff@guardingyourwealth.com.
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