‘Set It And Forget It’ Investing . . . Are You Nuts?

9805332_sI have crazy sleep patterns. Oftentimes I wake up in the middle of the night . . . just thinking about things. When I cannot sleep, I like “channel surfing” to check out the infomercials on TV.
The other night, I was channel surfing and came across an ad for a rotisserie and barbecue oven with the sales pitch, “Set it and forget it!” I couldn’t believe they are still pitching this product! I remember an almost identical commercial running when I was in college . . . and that was 25 years ago!
You must remember the one, where a guy and his side-kick start with raw meat, quickly throw seasoning on it, toss the meat into the oven and then both yell out together, “Set it and forget it!” I sat there at 2:30 in the morning watching these guys do this over and over again with different recipes. I guess they were trying to show people they could prepare a fantastic meal with almost no effort. Although I was sucked in to the commercial, I find it difficult to imagine that the process would be as simple and painless as it appears on TV. I couldn’t help but wonder what would happen if something went wrong. You see, in my profession, I always have to consider the “what ifs.”
What if, while cooking your meat and having a glass of wine, the machine explodes? What if the oven not only blew up your meal, but also took out a section of your home? Now, that would get your attention! We would have to change the tag line to “…set it and can’t forget it!”
Hmmm . . . maybe “setting and forgetting” is not such a great idea.
But, you see, this is exactly what we are told to do with our investments. We are flooded with information from analysts, pundits, brokers and brokerage houses telling us to simply put money in the markets and to “set it and forget it.” “Don’t worry about it,” they say, “Markets go up and down, but over the long term they always go up!”
But . . . what if they don’t? What if one day you open your brokerage statements to find that your investments have blown up your retirement plan? Which analyst, pundit, or whomever is going to refund you all the money you lost? Heck, Uncle Sam will cut a check to GM and AIG, but he won’t give anything to your Average Joe; nope, we are on our own. We actually need to live with the consequences of our decisions when things don’t work out.
Folks, this is why the best thing we can do is pay exceptionally close attention to what we own, ask why we own it, and create a plan long before any action is required.
What I want you to understand is that the “buy and hold” approach to investing is no longer effective and has not been since 1999. We cannot, and should not, trust that things will simply “work out.” Unfortunately, many learned this the hard way in 2001, 2002 and 2008. And current economic conditions also look ripe for a downturn.
Our economy was flat in the first quarter, housing is weak and not getting better, jobs are scarce, China is slowing, Europe is barely above zero, and markets are at all-time highs. Something has to break, right? The question you must ask yourself is this: With all the uncertainty, does it make sense to invest money and then simply forget about it? No, of course not. We cannot trust our financial security to historical long-run averages!
In addition to understanding when and why to buy securities, there also must be a clear understanding of when and why to sell securities. As the Kenny Rogers song goes, “You’ve got to know when to hold ’em, know when to fold ’em.” But without a strategy, how do we make those decisions?
Was the recent 500-point drop the start of the next correction? If the markets are up 500 points, is it too late to get in? Do you want more risk, or less? Is this decision informed by what you had for supper? Does spicy food drive your risk-taking higher, or make you feel bad so that you want to sell everything? What’s your strategy? How do you know? If you do not know or understand the markets, how do you make your investment decisions? Do you rely on those pundits in the media? Is that a good strategy?
Look, instead of letting the rest of the world affect your buy and sell decisions, take some responsibility for your finances and put some rules in place and stick with them. Now is not the time to get sucked into a false sense of security because your investments have recently moved higher, or because some pundit points to a 100-year chart and it looks like a mountain. You don’t live on a chart, and the chart won’t pay the mortgage.
Do not “Set it and forget it.” Pay attention to your money, have a strategy, and follow a system.
Folks, now is the time to be vigilant and stay alert . . . what’s your strategy?