Thursday, April 9, 2009

Passive Investing 101

For years we've heard about buy and hold and long term returns. Just how long does one have to fiddle while Rome burns? By no means do I wish to turn long term investors into Cramer crazed traders but paying attention wouldn't hurt. Whether that is done by oneself or with a interest aligned advisor there are tools to help keep investor's heads above water.

I remain a strong believer in using technical charts. These are not magical tea leaves to be read to predict the next day or week but rather depictions of market movement and the canaries in the coal mine. Long before we can absorb the nuances of market fundamentals charts can alert an investor to a trend change.

Rebalancing is probably the most important and one of the least implemented market strategies. If an investor has sufficiently diversified, rebalancing will provide the discipline to buy low and sell high. Without diversification and rebalancing an investor must be prepared to closely monitor and decisively act.

Employing an S&P index buy and hold strategy, including reinvested dividends, over the past ten years an investor would have lost 44% after inflation adjustment.

It is said that ninety percent of life is just showing up. Well, 90% of investing is just paying attention.

John Barnyak