Retired Investors Most At Risk Using Buy-And-Hold ‘Strategy’. When it comes time to place your hard-earned savings into a retirement account, the formerly sage advice of “buy-and-hold” may sound appealing. But you had better make sure that you agree with that school of thought in investing because the majority of investment advisors will follow that outdated strategy
The reason why “buy-and-hold” no longer works is because the U.S. economy has experienced two significant, damaging recessions in the past two decades, one from which we are still recovering. Those who have innocently entrusted their money to buy-and-hold proponents have, at worst, lost a huge chunk of their nest egg or, at best, barely broken even or slightly up.
Is that really what you want to do with your savings as you approach the Golden Years?
Buy-and-hold, when it does benefit investors, overwhelmingly favors those who are younger in their careers (age 25-45), points out Jeff Voudrie, president of Common Sense Advisors Those workers are putting money aside on a regular basis, out of each paycheck, so that when the markets go down they are able to buy more shares. “Those in this age range have such long horizons before they need to start drawing out for retirement income,” Voudrie notes, “that they can wait out a significant downturn.”
But for those sliding into the retirement age range, buy-and-hold can prove disastrous, he adds. “Those that are closer to retirement, say 55 years old, don’t have the time to overcome significant downturns. Volatility is something that most retirees want to avoid. Buy-and-hold guarantees that they will experience every ounce of volatility.”
Take, for example, one period of market turmoil over 15 months from 2009-11. Figures show that retirees who moved their money to cash and other safe assets actually did better than those who continued to buy and own stocks. The Congressional Budget Office reported that retirees lost more than $2 trillion during this short period
 Brandon, Emily. “Retirement Savers Lost $2 Trillion in Stock Market.” U.S News & World Report. https://money.usnews.com/money/blogs/planning-to-retire/2008/10/08/retirement-savers-lost-2-trillion-in-the-stock-market
Researchers and journalists agree on the peril of a buy-and-hold strategy when the bottom drops out of the market. As Emily Brandon reported in U.S. News & World Report, “Older workers’ average account balances are markedly higher, so they have more to lose in a significant downturn and less time to recoup losses before retirement.”
And, if you suppose that 2008 losses have been replaced during the current market upswing, you would be mistaken. Teresa Ghilarducci reported in The Atlantic that huge numbers of older workers have not recouped their losses in their 401(k) accounts in the decade after 2008. “We thought that this group of people would be relatively able to come back from the crash, but we found that the averages, as they often do, have hid some of the substantial differences between individual workers. These averages distorted the risks people are exposed to when their retirement accounts are tied to volatile financial markets, depend on employer contributions, and require people to maintain or increase their contributions themselves,” she wrote.
“The way American retirement accounts are set up suggests that an increasing number of workers, including those squarely in the middle class, will experience downward mobility in retirement,” she continued, “If current trends continue between 2013 and 2022, the number of poor or near-poor 65-year-olds will increase by 146 percent. These numbers are unlikely to change as long as retirement accounts are exposed to the fluctuations of financial markets and their uneven recoveries.”
To further prove his point about the hazards of buy-and-hold, Voudrie offers a quick analysis of the Investment Company of America (ICA), one of the most widely owned mutual funds, often recommended by Edward Jones and other prominent firms that still adhere to the buy-and-hold approach.
This behemoth, listed as AIVSX, hit a high of $33.63 on June 2, 2000. Approximately 16 months later, on October 4, 2002, it drooped to $21.81, a(retrieved 12/10/2017).
 Ghilarducci, Teresa. “The Recession Hurt Americans’ Retirement Accounts More Than Anybody Knew.” The Atlantic. https://www.theatlantic.com/business/archive/2015/10/the-recession-hurt-americans-retirement-accounts-more-than-everyone-thought/410791/, (retrieved 12/10/2017).
stunning 35% decline. If you were a retiree during that time and wanting to draw on your retirement account, you would have seen more than 1/3 of your savings evaporate.
It took another four years for AIVSX to recover to 2000 levels. On May 5, 2006, it rose again to $33.77 per share. In the intervening years, AIVSX shareholders probably hated seeing any stock reports as the value plummeted then creeped up again, and after all the turmoil they ended up with an overall return of exactly 0%–and a huge bill for antacids.
Regrettably, that was not the end of the ride! AIVSX again creeped up in 2007, hitting $37.10 on October 12. Whoops! By March 6, 2009, it had plummeted to $16.73 per share, a mindblowing drop of 55% that was so painful that many sold at the bottom and never invested in the stock market again. And again, it took four years to regain that enormous loss. It wasn’t until October 2013 that AIVSX again crept above $37.
The end result for buy-and-hold account “managers” who have no strong incentive to protect you from such downturns? S/he could report to you 13 years later that you had earned exactly 0% on your money invested in 2000. And, by the way, please note the total fees charged.
This is why Voudrie argues for money management that anticipates downturns and protects the investor from the bottom falling out of the markets. In reference to the unhappy investors who stuck with AIVSX from 2000-2013, he says, “If they could have been out of the market even partially during the significant downturns, they would have done much better and with less volatility.”
Consequently, Voudrie makes a powerful argument for what he calls “tactical management.” He explains: “Tactical management typically involves some type of pre-defined approach that helps identify when to enter the market and when to exit. Tactical-based strategies are better suited for cyclical Bull and Bear markets that might only last for a series of months instead of years.”
Drawing on sophisticated electronic monitoring and software, Voudrie works with his clients to create a personal investments management portfolio that reflects their lifestyle goals and risk tolerance. He specializes in stable growth and prudent profits while applying a robust, patented risk management processes.
That stands in stark contrast to outmoded buy-and-hold approaches. The word picture that Voudrie, a veteran financial advisor with three patents and five books to his credit, uses to illustrate retirees clinging to hope for their savings stuck with buy-and-hold advisors is not reassuring: “They are adrift on the ocean without a rudder to steer.”
Jeff Voudrie, a financial planner in Johnson City, TN has been interviewed or referenced by CNNfn, The Wall Street Journal, “CBS MarketWatch,” The London Financial Times, Kiplinger, and the Christian Science Monitor. He is a former syndicated newspaper columnist (“Guarding Your Wealth in 40 newspapers with 150+ articles on investing and managing wealth) and the author of multiple ground-breaking books: The Retired Investor’s Survival Guide: Protecting and Maintaining Retirement Income Throughout the Looming Financial Crisis (2013), The Retired Investor’s Survival Guide: How Successful Investors Tripled the S&P 500: The SECRET to Stop Playing by Wall Street’s Rules, End Your Frustration, REGAIN Control of Your Finances (2012), The Retired Investor’s Survival Guide: The 7% Annuity Guarantee Exposed (2010), The Retired Investor’s Survival Guide: Why Variable Annuities Don’t Work the Way You Think (2008), The Retired Investor’s Special Report: Annuity Alert: Beware of Allianz MasterDex 10 (2006).