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When “Buy and Hold” Investing Strategies Aren’t Enough

It’s been a pretty volatile start to 2016 across all eight of the major world indices, with China’s Shanghai Composite down close to 48% since its 2015 highs, leading the international MSCI Index into bear market territory. As the world tries to digest the longer term effects of easy monetary policy, slowing Asian economic growth, and the prospect of long-term depressed oil prices, we can be sure that we haven’t seen the last of the market volatility.

While the standard advice from most advisors has always tended to be to “Stay the Course”, it’s hardly that easy in reality. Anyone who rode out the crisis of the 2008 financial meltdown knows the feeling that we’re talking about. Watching the markets eat away at half of your life savings is hardly something to simply ignore, with the expectation that it will turn around given a long enough time frame.

Let’s take the technology focused NASDAQ index as an example. If you had invested your money in the index near the top of the tech bubble in 1999 with the intent to buy and hold, the ensuing collapse would have eroded your principal, taking until late 2015 just to break even again. If you’re like most investors, the thought of having to wait 15 years just to break even doesn’t sit well, especially if your investing timeframe is shorter, or if you’re taking income. This is just one case of why the traditional buy-and-hold strategy may not be all that it’s cracked up to be.

With any investing strategy, the key to success consists of two things: actually having a strategy that manages risk and ensures proper diversification, and having the discipline to stick with the strategy. That’s where the expertise of a financial planner comes into play. At Wealth Planning Network, we focus on providing clients with true diversification strategies that limit your downside risk, while still providing some exposure to the gains of the market. While it may not be as exciting as buying and selling penny stocks, or trying to pick the next breakout tech stock, the disciplined approach sets firm investing guidelines, and ensures that the your risk tolerance is followed- even in the good markets.

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