Is the passive buy and hold strategy a myth?
Let me ask you a very simple question.
Imagine if your entire retirement plan left you dead broke because you were told a lie? Have you ever been told by your financial advisor, planner or other guru not to worry “just take the long term view” and she’ll be right?
This could literally be a “six word death sentence” for your investments and retirement lifestyle.
Sure, that sounds like a bit of sensationalism, to me, but is it really? Once I started to look into this a bit deeper, under a few rocks and in some dark corners. What I discovered shocked me to the core. If I were a betting man, I reckon you will feel the same…
What the figures don’t say!
Numbers don’t lie – great quote and a truism, but all too often, numbers are like a bikini, they reveal what’s interesting but cover what’s crucial! Looking at the performance of your investments – say a managed fund or stocks, there are numbers that go a long way to showing performance – for example, your unit price on a managed fund, will show you on a gross basis, how the fund is going.
What about if you are looking at how the stock market has performed, perhaps you might look at the index – say the Dow Jones, in the US, FTSE in the UK, DAX in Germany and the All Ordinaries in Australia.
On first brush, things look quite rosy. For example, the All Ordinaries Index is up 101.5% over the past 15 years (residential property has been less than this). Not bad, and so you would be forgiven for thinking that you are on track for a nice comfy retirement. Free of financial stress and with plenty of resources to fund your retirement! Wrong…
Make sure you avoid the trap of basing things of first brush!
Let’s take a look at these figures in more detail, and see what they really mean for you. After all, this is your future we are talking about here, so probably worth spending a few minutes to look a bit closer, right?
The return killer twins
The two big issues that most investors forget to take into account are inflation and tax. Two silent assassins that can decimate your plan if you overlook them.
Inflation is that pesky cost of the rise of living which, each year, means your hard earned dollars buy you less and less of the stuff you want. Think about how much more expensive fuel for the car is these days, compared to sub 70c a litre, it was 15 years ago. Alternatively, nipping out to grab a coffee – no longer that two dollar experience – probably nearer five these days, depending on where you live.
Over the past decade, Australia’s inflation rate has been on average 2.9% and you’re right, that doesn’t sound like it’s a problem. Let’s have a look at that in a minute.
The other killer is income tax. Like they say, there are only two certainties in life – death and taxes! Depending on your tax rate, your returns can vary massively, so let’s have a look at that, based on the Australian All Ordinaries Index.
| Time Period | Average Percentage Return1 | Average Inflation Rate2 | After Tax @ 15% & Inflation | After Tax @ 30% & Inflation | After Tax @ 45% & Inflation |
| 5 years | 9.70% | 2.4% | 5.84% | 4.39% | 2.93% |
| 10 years | 6.44% | 2.7% | 2.77% | 1.81% | 0.84% |
| 15 years | 6.77% | 2.9% | 2.85% | 1.84% | 0.82% |
Past performances are no guarantee of future performance, and let’s hope not, when looking at these on a net basis.
Hang on a minute… let me get this right
So let’s clarify this – over the past 15 years. The net return to investors, depending on their tax rate from the All Ordinaries Index is highlighted in yellow. At best and assuming you are being taxed at just 15% like your Super, your annual return is just 2.85% per year. Hardly breathtaking yet still better than the overall percentage returns from residential property a gross 5.3%pa over the past decade!
So what about managed funds – you will be astonished?
A few weeks ago, I came across an article in the Sydney Morning Herald3. That suggested that a whopping 70% of actively Managed Funds underperformed their benchmark – which typically is the index, by the way. This would come as a surprise to all of us; particularly given the fees we pay to the Fund Manager to add value.
How about your shares, how have they done?
Most barbeques end up with people having a chat about their portfolio of shares, there are almost always the “usual suspects” maybe your portfolio includes some of these too?
Would you accept a bribe, to stay friends with someone that was doing the wrong thing?
The list of suspects almost always includes AMP, Telstra, BHP, CBA and Qantas, as well as a few other fringe players. With the exception of Qantas Airways Limited (ASX: QAN) – and it would be un-Australian to ditch them, most are held onto tightly for their twice a year dividend. In an environment of low interest rates and low bond yields, for many investors. The prospect of that cheque in the post, every six month, adds a few more per cent to the overall return.
Put another way, perhaps, it prompts the share holder to look past. And even ignore some of the flaws in the business, or indeed the performance of the share price, in favour of receiving a dividend cheque.
Without the “bribe” of a dividend and franking, wouldn’t most sane investors ditch this stock like a bad habit?
Let’s take a look at Telstra Corporation Limited (ASX: TLS) – one of the most widely held shares in Australia. Telstra Corporation Limited (ASX: TLS) has really struggled – it made the move from a Government owned operation to a public company (in 1999). During that time, the performance of its shares has been – well – dire! Can you believe that the shares used to be as high as $9.16 – by the way they are currently $5.57.
The performance of the shares has even underperformed the return from the All Ordinaries index. So on just about any measure, this stock has been a complete disaster for any long term portfolio holder’s investment, yet typically, they continue to proudly hold on.
Do you want to be Right or do you want to be Rich?
A massive number of people hold these shares in both managed funds and directly in the Self Managed Super. Why – because around every February and August, the company gives its shareholder a dividend. Cold hard cash – every 6 months, die-hard shareholder get rewarded for holding on.
Currently this stacks up to around 5.2% per year – which compared to Bank interest, is very appealing, but is it enough to offset the damage done to your capital?
Then again, just maybe, income is more important than capital for some investors?
Can you believe I got ridiculed the first time I shared this strategy with a group
I remember it well – because it really hurt me. Imagine being totally passionate about something – living and breathing it – making great money from it only to get laughed at – humiliated.
You see, I wanted to help other people enjoy the same regular success I was having. What I didn’t realise at the time, is that even though people actually know what they’re doing isn’t really working – it’s never going to get them from A to B, they would prefer to blindly follow what the masses do rather than change. They Buy, Hold and Hope!
Sadly, this is why most people never make it to a more wealthy life – isn’t it easier to stay in line with the mob, and hope it somehow works out?
Most people don’t enjoy change and almost everyone hates being wrong
So rather than them move forward, it was easier for them to dismiss and laugh at the idea and strategy I presented. What were they laughing at?
They were laughing at the idea of making extra income on a monthly basis, whether the shares went up or not – without having to even watch the market and all with a lower level of risk.
You would think I was Christopher Columbus trying to convince them that the world was actually round, not flat!
Right there and then, I made a decision. That was to build a water-tight case that anyone could read and understand. But more than this, something straight forward and possible for anyone to follow and then actually do. And it worked!
They don’t laugh at me now; instead, they follow my every move – shadowing precisely my game plan and make thousands of extra dollars in monthly income
Ok, so now you are expecting some “super trader secrets” – sorry that’s not us – in fact those sorts of things are just the usual marketing hype that you see around the net all the time. Also – let me be clear, you won’t be doing this every month, because market conditions can change. However, when the ducks line up, we take the opportunity to generate income.
No in the real world. We work with literally thousands of everyday people and use four very simple. And powerful rules to manage the process. After all, when the process is right, the results always follow, right?
I don’t want to waste your time so before we go any further, let me show you the results from the strategy we use
Firstly, this strategy is a proven outperformer. What do I mean by that? Well, those boffins at the University of Sydney did some research on it. You know the nerdy statistician types that dissect the results right down to the 10th decimal point and show black or white, precisely whether or not something works.
Here’s what their research showed. This strategy adds an extra 7.25% per year on top of what you are getting from your shares4 – bare in mind that investing does involve the potential of loss. However, this research actually showed that using the strategy compared to just owning shares also lowered your risk. So more return and with lower risk than simply just buy and hold…
Boost your wealth by enjoying higher returns and lower risk at the same time?
Yep I know, this sounds ridiculous – remember – I got laughed at the first time I shared this! However, these are the cold hard facts and not my numbers – these were provided by the Uni guys and are even used on the ASX’s website.
Imagine a retired truck driver making an additional $23,516.20 in passive income without even following the market?
One of our clients is a retired truck driver – he’s in his 70’s and has had a life on the tools. In retirement, like all of us, he needs cashflow and has been using this strategy for a while now. He started small – always the best way and has now started to get serious about generating more income.
From a legal and compliance perspective, I must point out that past performance is no indication of what can happen in the future, and, while Peter knows there are risks associated with investing, he also uses smart strategies to reduce those risks to a level where he can sleep at night.
So better doing something than nothing, right?
And let’s stop here for a moment – what are his investment alternatives anyway – keeping his investments “safe” by holding cash? You would have to be kidding wouldn’t you! With interest rates currently at 2.5% taking out tax and allowing for the current rate of inflation holding cash right now is practically a guaranteed way to make a negative real return!
Avoid the danger of falling in love with your shares…. At all costs
Most portfolio investors never sell – they hold on (heaven forbid you get hit with capital gains) and enjoy that 6 monthly dividend. Consider something for a moment – if you owned an investment property but only got a rent check every 6 months, would you be happy with that? What if the property itself had massively underperformed the market – still happy to hold? I doubt it…
Never selling – falling in love with the stock – means that you are now relying on emotion to guide your decisions, and we all know from experience, that invariably ends in tears!
Get in, then it either works or doesn’t and then get out
Think of it this way, all you are interested in is unlocking the cashflow or value from your portfolio. Just making your money and moving on, not beginning a tragic love affair with some shares! The reason for this is simple. Very few investors realise that the longer you are holding onto the shares, the longer you are exposed to the market and its risks.
“Sick as a dog” – another Aussie favourite that could be killing off your hope of a wealthy retirement…
Take another Aussie portfolio favourite – AMP Limited (ASX: AMP). The stock listed back in June 1998 and got up to an all time high of $21.99 in 2001. Currently it is trading at $5.64 and has underperformed the market massively for almost 16 years now. Yet again, it is a core inclusion for all too many portfolio investors. It too pays a dividend of around 3.5% per year.
Our clients following my Income Enhancer Strategy trading AMP bagged a gross profit of 6.68% in just 36 days!
Crazy, I know. And sure, any investment professional – myself included – will tell you that past performance is no guarantee of what can happen in the future. However, we use a process – the same process on each trade – just like following a recipe, and that is a huge advantage when finding opportunities. Why? Because it gives you a level of consistency in all of your decision making.
While we are on the subject of risk, let’s face it, you and I both know that trading involves risk – but compared to watching AMP Limited (ASX: AMP) shares drop from $21.99 to $5.64 (as many long term investors have been absolutely torched by), I don’t know about you but I would jump at the chance to crank out that 6%Plus return, particularly if my risk was only a few per cent on the trade!
And we don’t even like trading AMP with this strategy!!
But what makes this even more ridiculous is that AMP Limited (ASX: AMP) is one of our least preferred stocks to use this strategy with. We may go back and trade it again, but right now, our trading team are scoping out the next opportunity for an “income take down”.
Being able to benefit from more cashflow and less work
Now forgive me here, as I could be wrong, but my guess is that you would probably like the opportunity to generate more income – ok so that is a no brainer, of course you would.
However, if you had to jump through hoops and put in hours to do this, you would likely stop and have a think about it. Good thing is, with us, you don’t have to do either!
Here’s the thing. With our service, you can tap into this strategy with minimal work – realistically 10 – 15 minutes a week, yet still have the opportunity to take part in these kinds of trading opportunity. Most people think you need to be in front of a trading screen full time, to profit from these trades. And that is not true.
Take Miranda, who with her husband, was running a massive cattle station out West.
“I thought you had to be on Wall Street to do this kind of stuff – I didn’t know I could do it myself”.
The reality is that with our EasyTrade ® tool, you can be practically anywhere on the planet and be able to benefit from these strategies.
Imagine being a total novice, yet being able to piggyback on our expertise and trade like a pro?
This is exactly what we do – provide you with all the information and help to be able to easily make an informed decision and we do the rest. All of the hard work – the heavy lifting – the analysis, working out where to take profit or cut losses.
What’s more our team of seasoned professional traders actually manage the positions for you, day in and day out, making sure that there is always a set of eyes monitoring the markets for you.
There’s no excuse for missing opportunities – now you can cash in and generate yourself more income
This is not a fancy concept or idea. This is a reality that thousands of everyday investors are choosing to learn more about, and actually start doing.
With a minimal time input and the ability to get started with an investment amount that suits you, using a couple of straightforward rules, and all of our support, to help you generate additional cash flow and reduce risk….
Well come on, there’s never really been a better time to get started than now.
If Rob did this, why can’t you?
Rob is a regional manager, out and about with his business – giving him very little time to closely follow the market. Through our full service advisory and support, he is able to be active in market and generate cashflow, while his time is spent on other things. Chances are, you might just be in a similar boat to Rob, right?
His account is up $4200 over just 4 months – he seemed quite pleased, as I am sure you would be! And again, yes past performance is no indication of the future and yes, there are risks – but come off it, isn’t blindly holding on to some shares and hoping they go up, an even bigger risk?
So, is the passive buy and hold strategy for financial success a myth?
Well I guess that depends on who you ask, right? So to make sure we are on the right track, let’s have a look in summary at the ground we have covered:
- Firstly, we have looked at the actual returns from the ASX, in terms of market performance. For anyone following these as a long term buy and hold investor, the outcome, on the surface looks okay. But then we dug deeper!
- Once taking into account tax and inflation, the returns were dreadful. What’s more, most actively managed funds underperform these returns, as did residential property!
- We then looked at the performance of a couple of the typical buy and hold shares – and their performance relative to the market and in terms of their lack of positive contribution to your wealth.
- We also looked at the dividend factor. And how that can help blur investors’ decisions to hold onto something they perhaps shouldn’t.
- We then looked at the research from the University of Sydney. Reviewing the strategy we use – it showed higher returns and lower risks.
- We then looked at real client results. People who follow our service. And how they have been able to generate extra income from this.
- We also suggested our service requires only a very limited time input. And no prior knowledge. Now right now, chances are you don’t fully understand how this works – after all, we haven’t shown you yet.
- But why not invest a few minutes and see exactly how this works, for free. By checking out one of our sessions or chatting with the team. Click here
- And we have noted that there are risks but they can be managed.
- So far, lots of proof that the long term view is not delivering you the results you deserve. In fact, there is probably only one person. Who will tell you that the long term buy and hold is the best way…
So who would encourage you down the dark path of the passive buy and hold long term view?
In reality – your financial planner or adviser – and I wonder why?
Well, they will receive a nice fat cheque – trail income – on the managed funds they may have jammed you into (whether you are profiting from them or not). If you redeem and move your money. That income (for the planner) stops dead right there and then. So you can probably understand why they may be just a little passionate about stay in for the long haul.
Perhaps you may want to check out the most recent results from ASIC’s survey into the Financial Advisory5 space. Published in the Sydney Morning Herald. It is absolutely staggering!!
“According to ASIC 37% of financial planners failed to prioritise client needs and give correct advice…”
Look. There really hasn’t been a better time to get control back. And start building a retirement lifestyle that you can look forward to, rather than dread.
And that may just start with an investment strategy. That has been shown to be a proven outperformer. By clicking here, you can access a whole bunch more information that will show you exactly, step-by-step how we can help you. Just as we do for our clients, take advantage and profit from regular opportunities.
Now they don’t laugh at me, they laugh at what they were doing with their investments in the past
The funny thing is, these days; I get to spend time with literally thousands of people from all around the world. Helping them apply this straightforward and powerful income strategy.
In many cases, it has helped everyday folk – just like you and I – enjoy a better. Richer lifestyle and for some, for the very first time. A financial future they can be proud of and look forward to.
Sadly, not everyone gets it, instead of doing something; they are resigned to continuing to plod along. Hoping their fortunes change, miraculously, one day.
Stubborn and insisting that one day, it will all come good – it seldom does. Worst still, the longer it takes to change. Well, you can never get time back. Please do not be that person.
Why jeopardise your financial potential by refusing to even look?
Let me reward you for your time right now, by giving you an opportunity, totally free of charge. To learn more about this and see how we can help you. Click here
Source information:
We know this report with be controversial. As a result, please find below the source for the core information referred to above.
1 Performance of ASX All Ordinaries Index
2 www.rba.gov.au/calculator/
3 www.smh.com.au/business/why-70-of-managed-funds-underperform-20120919-26603.html
4 www.asx.com.au/documents/professionals/Buy_Write_Encyclopaedia_August_2012.pdf
5 www.smh.com.au/business/banking-and-finance/unacceptable-level-of-failure-asic-takes-aim-at-financial-advisers-over-life-insurance-information-20141009-113g08.html
