Buy and Hold vs Natural Selection Self-Investing

Before we get into a discussion of why Natural Selection Self-Investing works, it is important that investors understand what the strategies of their conventional financial planners provide for them (or more aptly, what they don’t provide). Investing in under-performing or bear market assets is one of the most common mistakes in the investment world and in conjunction with high management fees, is the leading cause of sub-standard returns for investors. Unfortunately, it is also the hallmark of buy and hold strategies employed by the financial services industry. Regardless of whether an investment is flat or losing money, we are told to wait it out. Of course, we are led to believe that this is perfectly normal and when under-performance occurs, we are told that our investments are long-term and therefore we should not worry because the returns will come in the future. In reality, the returns often never materialize.

The sad fact is that “buy and hold” exists simply because the financial services industry doesn’t get paid based on their market performance with your investment money. Rather they get paid based on the quantity of money that they hold under management. It is their goal, therefore, to keep clients fully invested regardless of market conditions. Unfortunately, there are large stretches of time where buy and hold has performed miserably because markets were in correction, and depending on your age and investment horizon, you could find yourself a victim of bad timing. For illustrative purposes, consider the following 20-year chart of the US S&P 500, which is an index of 500 large-cap companies in the US, a common benchmark that most professional money managers seek to outperform (usually unsuccessfully).