When to let go of an investment

In the same sense that there may be no such thing as a truly low-maintenance garden, so too, guaranteed returns from set-and-forget investing can be elusive, according to Robin Bowerman, the market strategist at finance firm Vanguard Australia.

I couldn’t agree more. A few years ago, having become sick and tired of constant weeding and lawn mowing, I replaced my backyard grass with artificial turf and brick pavers. Today, the weeds are back with a vengeance and even growing through the turf.

So why does Mr Bowerman compare gardening with investing? Well, weeds can pop up unexpectedly and in the most unlikely locations. The fast pace of change in global politics and economics that we are experiencing today is unprecedented in recent history. In the bat of an eyelid, everything we once took for granted can be turned on its head. Just like the global financial crisis of 2008 that no one saw coming, or the Brexit vote shock and even the elevation to the US Presidency of Donald Trump, with all his disruptive strategies. Volatility, nowadays, is just around the corner.

But Mr Bowerman asserts that ‘set and forget’ is not the same investment strategy as ‘taking a long-term view’. There are investments that you can buy and hold without having to monitor daily performance. But at some point, perhaps once or twice a year, you should check in to ensure they aren’t falling over.

“One of the challenging decisions facing investors is rebalancing. Once you have set your long-term asset allocation and risk tolerance, as markets move around, your portfolio will inevitably move outside the allocation levels you are comfortable with,” he wrote in a piece for the Australian Securities Exchange. “It is common sense to rebalance the portfolio to stay within your comfort zone.

“Just like a good garden, investors are still best served by taking a long-term view, engaging in regular maintenance and accepting that it requires courage and conviction to see portfolios through tough market conditions.”

However, if you are not an avid reader of the financial pages and prefer passive investments where you don’t need to stay on top of your stocks on a daily basis, you might consider buying into a fund.

A managed fund, where expert investment analysts do the heavy lifting of watching stocks for you, might be appealing. However, this type of investing usually comes with expensive commissions and fees because you are paying for the expertise of a fund manager.

A more cost-effective and passive investment vehicle is an index fund. This type of fund buys a basket of similar assets that mimic the performance of a particular index, such as the All Ordinaries or S&P-200 indices. As you are not paying for the fund’s investment skills per se, they are cheaper than a managed fund.

Whether you are thinking of becoming an active or passive investor, always speak with your financial adviser first to help you align your goals with the amount of risk you want to take. Have you ever bought and held investments for the long term? If so, did you get a pleasant surprise when you checked your returns, or a nasty shock because you forgot to monitor the asset?

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Written by Olga Galacho

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