Buy and hold investing is not dead by any means. But it has to be reconciled with the dramatic increase in investor impatience and complacency that is natural after the decade-long run in the S&P 500 and a two-generation-long run in bonds, says Rob Isbitts, the chief investment officer of Sungarden Fund Management.
Yes, you should want to be a long-term investor. But long-term investing doesn't mean you have to be Rip Van Winkle; invest in a few index funds and wake up years from now to see where you land, says Isbitts.
Why so? "Because you can have entire decades where you don't make any money with a strategy like that," he says. "And especially as people get closer to retirement, or if they're in retirement, that becomes really, really dangerous. Almost as dangerous as seeing all the money you accumulated go to dust when the market sells off 40, 50 percent."
The way to combat that, says Isbitts, is that you have a designated part of your portfolio that is not going to turn over very much - it's the long-term piece - and you complement that with a portion of the portfolio where instead of owning investments or investment segments you're renting them.
"What is a rental?" he asked. "A rental can be three weeks, three months, even a couple years. But it is judged to be a rental."
And the reason why this is so important for investors today, according to Isbitts, is because of increased volatility and the fact that markets and market segments can long periods of time where they go up 15, 20 percent, they go down 15, 20 percent and - at the end of the day - "you really haven't gone anywhere."
And that's why, says Isbitts, the tactical part is important. Listen to the podcast for more.
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