Buy-and-hold investing has been preached to individual company 401(k) retirement plan participants since the beginning of their working careers. Let’s call it what it really is; buy-and-hold investing is just another name for “set-it-and-forget-it” investing.
Financial services companies have spent millions of dollars to promote the buy-and-hold investment management strategy. The reason for the promotion is that buy-and-hole investing makes them the highest possible investment management fees.
Nowhere is the buy-and-hold investment management philosophy more prevalent than in your company 401(k) retirement plan account.
Can you name one other investment in your working lifetime that you have been able to “set-and-forget?”
Has the price of your house changed over the last few years? What about the price of gasoline and food? What has happened to the price of your health insurance in the last few years? Have you paid any college tuition in the last few years?
There are no other economic benchmarks in your life that you can buy-and-hold. To think for one minute that stock and bond market investing is different is crazy.
Rational and logical people make risk management decisions based on changes in current events and trends. This is true in all areas of life and career. Your company 401(k) retirement plan needs this same attention to detail.
One of the most influential economists in history was John Maynard Keynes. A famous quote of his puts buy-and-hold investing in the right perspective. “When events change, I change my mind. What do you do?” The U.S. stock markets have been in a strong uptrend for over six years now. It has been exciting to see the value of your company 401(k) retirement plan account slowly rise to all-time high values.
A once-in-a-lifetime trend has been in place for U.S. interest rates. If you own a bond mutual fund in your company 401(k) retirement plan account you also have seen all-time price highs recently.
Financial assets carry much more risk today than any time in recent economic history. The volatility of the world’s economies and stock markets is too significant today.
At some point in time, there will be more sellers of stocks than buyers of stocks. There is also a U.S. Federal Reserve interest rate hike coming soon. Either one or both of these normal cyclical economic events will wipe away the better part of your last few years of stock and bond market investment gains.
Your long-term company 401(k) retirement plan investment game plan has to include a risk-management strategy. You can’t count on the buy-and-hold investment management strategy going forward. The risks to your company 401(k) retirement plan account principal are too great.
Ric Lager
Lager & Company, Inc.
