Current market environment performance of dynamic, risk-managed investment solutions.
By Jerry Wagner
Flying has always fascinated me. My dad served in the U.S. Army Air Corps during World War II, flying gliders and B-17s, and serving as a flight engineer on the B-29 for 18 missions over Japan. Growing up, I loved hearing his stories—and over the years, I’ve realized that not every journey is best handled by flying straight through without stops or adjustments.
That’s essentially what a buy-and-hold approach to investing promises: a direct, effortless flight to your financial destination. But as most investors know, markets don’t always cooperate. Just as weather delays, detours, and unexpected turbulence can disrupt even the best-planned flight, long-term investing strategies can face unexpected market downturns, volatility, and emotional challenges that throw plans off course.
The appeal—and drawbacks—of buy-and-hold investing
On the surface, buy-and-hold (or index) investing can look as efficient as a low-cost nonstop flight. The duration is known, the cost seems minimal, and the destination—a growing market—is presumed to be guaranteed.
But history tells a different story. The 1930s proved that markets don’t always recover in a few years. More recently, the first decade of this century—the “lost decade”—saw investors experience two major bear markets, delaying retirements and long-term goals. One investor I know lost $400,000 in his retirement fund during the 2000–2003 crash, recovered only to a little above breakeven by 2007, and then saw another $400,000 disappear during the 2007–2009 financial crisis. That’s hardly a smooth flight.
The real costs of “set it and forget it”
The supposed low cost of buy-and-hold investing hides a more significant expense: losses during inevitable downturns. When portfolios lose 50% or more in a bear market, even disciplined investors are left with fewer dollars to participate in the eventual recovery.
And most investors aren’t perfectly disciplined. The constant noise from the crosscurrents of financial markets, “breaking” news alerts, and endless information streams makes it extremely difficult to do what a buy-and-hold strategy demands: simply hold on. Fear and greed creep in, tempting investors to take on more risk late in a bull market and to flee to cash near market bottoms—often locking in losses and missing the eventual rebound. Even with index funds’ low internal costs, the behavioral impact of these missteps can be enormous.
Of course, if you did exit the market near a bottom—in addition to that plunging feeling in your stomach (grab the air-sickness bag!)—you’ve now incurred a loss and are faced with the dilemma of when to buy back in. Suppose you took the loss on the decline and were also late to re-enter the market (according to Dalbar studies, this is the fate of most investors going it alone without the help of a financial adviser). What was the true cost of the buy-and-hold index strategy?
A dynamic approach offers more flexibility
For investors seeking a way to minimize these risks without compromising long-term goals, a more flexible approach may be beneficial.
Flexible Plan Investments’ (FPI’s) dynamic, risk-managed investing approach is like having multiple modes of transportation—not relying on a single plane ticket. We seek to use the solutions that most effectively meet your needs, adjusting to conditions along the way instead of relying on one rigid route.
We offer a wide variety of investment strategies and risk profiles, allowing financial advisers to build portfolios tailored to each investor’s goals and time horizon. Our quantified, computer-driven management helps keep emotion and bias out of decision-making. Like a skilled pilot responding to changing weather, our strategies can shift, hedge, or move to safer assets to help avoid the worst turbulence.
Navigating toward your goals
A nonstop flight sounds appealing—until you hit unexpected storms or a diversion. Investing can be much the same. Flexibility, adaptability, and proactive risk management can make the difference between staying on course and facing costly detours.
FPI’s dynamic strategies are designed to adjust to changing market conditions, helping investors stay aligned with their long-term plans while managing risk along the way.