What’s wrong with being a long-term investor?

“Why should you buy and keep? Because you are a long-term investor. All you really have to do is buy high-quality companies and sit on them. Once you’ve done that, you can lie back in your hammock and sip mint juleps. Life will be beautiful. “

I’m sure you’ve heard this advice. It sounds good, as long as you don’t look at it too closely. But let’s look at it closely:

For starters, how are you going to find those big companies that you can buy and ignore? And once you’ve found them, how do you know what’s going to happen in the future? JC Penney almost went bankrupt recently, and one wonders if he will survive. Other good companies didn’t survive: remember Montgomery Ward? And then there was the darling of Wall Street, the most admired company whose profits were growing by about 20% a year: Enron. The people who invested in this “big company” lost everything. It was the same for the people who invested in good companies in 1929, when the market dropped by 92%. Do you think your investment can survive such a drop?

Second, when you retire, you are no longer a long-term investor. If you’re 30 years old and don’t expect to receive your money for another 30 years, you’re a long-term investor. If you are retired or within five years of retirement, you will soon need to withdraw money from your investments. You cannot afford to invest for 30 years. Not only that, but you can’t afford a big loss. It takes too long for your investments to return to balance. Think about it: right now, we are celebrating the fact that the market is reaching unprecedented highs. Great, but the last all-time record dates back to 2007, six years ago. If you had retired in the last six years and had bought into the idea that you were a long-term investor, you would be out on the water, taking money out of a broken account. It’s a terrible place to be.

Don’t let yourself slip into that place. Don’t convince yourself that you are a long-term investor. If you’re over fifty, you’re not in the market for the long term. You are in the market to have money to live on, now or in the near future. To do this, you need to get rid of the old buy-and-hold board and you need to remember to buy, hold, and sell.