Buy and Hold Investing – Put Time on Your Side
Q: Why should I stay Fully Invested?
A: “Buy and hold” investing — or buying with the intention of holding on to an investment for a long period of time — is the opposite of “market timing” — or trying to time your purchases and sales to correspond with the market’s fluctuations. Investors who practice market timing try to identify the best times to be in the market and to be out of the market. This means they trade frequently, which increases the chances that they will miss out on the market’s most profitable periods.
(click image for larger view)
Note: Stocks are represented by the S&P 500, an unmanaged index that is generally considered representative of the U.S. stock market. Past Performance is not a guarantee of future results. The S&P 500 is an unmanaged index that may not be invested into directly.
The chart is based on an initial $10,000 investment and shows what missing the best days in the market could mean to you.
Does the fact that investment prices aren’t stable but rise and fall mean that the longer you stay invested, the greater your chance of losing more of your money?
Historically, the answer is no.
Take a look at this chart for a moment. It shows what happened to $10,000 invested in stocks for 20 years. If the full amount were left alone, it would have grown to $57,527. But if the investor missed the stock market’s five best days during that period, the $10,000 investment would have only grown to $38,176. And missing the 30 best days would have reduced the investment to $12,055.
So, there are two points to think about. First, stocks and other investments rise and fall in price significantly during short periods of time. Second, as holding periods get longer, changes in the value of a portfolio typically become less pronounced.
Sweeten Wealth Management focuses on buy and hold investing / investing for the long term.
Source: Standard and Poor’s. For the 20-year period ended December 31,2010. Stocks are represented by the S&P 500, an unmanaged index that is generally considered representative of the U.S. stock market. Past Performance is not a guarantee of future results. The S&P 500 is an unmanaged index that may not be invested into directly.
Q: Why is it important to plan for retirement?
A: Retirement is getting longer and more expensive. That’s partly because people are living longer — a trend that’s likely to continue as people take better care of themselves and benefit from medical advances. The average 65-year-old American now has a life expectancy of over 18 years, and many retirees can look forward to 25 or more years in retirement.* That’s pretty good news!
At the same time, retirement isn’t what it used to be. Today’s retirees are leading more active lives. They’re often focused on travel, hobbies, and other activities that typically cost more than simply spending time at home. Meanwhile, workplace changes are making it more likely that future retirees will be responsible for providing the bulk of their own income.
With the Social Security system under stress and the declining role of traditional pensions, it appears that most people will have to finance even more of their retirement in the future.
*McGraw Hill Financial Communications. “An Introduction to Investing”. PowerPoint. September 2010.
Professional Financial Advisors
Q: Why should I get the help of a financial advisor instead of just figuring my own investments out?
A: A qualified financial professional is trained to estimate your financial needs, minimize the impact of taxes, and pursue portfolio diversification. Moreover, a good financial professional can help reduce the emotions involved in decision making and keep your long-term strategy on track.
Whether you are an experienced investor or just starting out, a financial professional can help support your financial goals and bring clarity to issues you may not have thought about, such as:
- Income and savings – This may be a particularly important topic if you anticipate changing jobs, starting a business, or staying home to care for children.
- Retirement – An investment professional can help you calculate your goals and evaluate your investment risk tolerance.
- College – An investment professional can help you take advantage of the often-complex governing educational funding and financial aid.
- Estate planning – Having a tax-efficient plan for the distribution of assets to your heirs may allow them to keep more of the money you accumulated during your lifetime.
- Contingency fund – Thinking about the possibility of a job loss or illness is not pleasant; however, an investment professional can help you work toward building a surplus for unexpected events.
Building a relationship of trust takes time. The sooner you contact a financial professional, the sooner you will be able to take charge of your finances, simplify your financial life, and devote your energy to other important matters.
Look for a CERTIFIED FINANCIAL PLANNER™ professional.
Only those who have fulfilled the certification and renewal requirements of CFP Board can display the CFP® certification marks. When selecting a financial planner, you need to feel confident that the person you choose to help you plan for your future is competent and ethical.