August is here and you may be planning how to kick-back for the last bank holiday of the year. Not me. I’ll be facing my first half iron-man triathlon that weekend in a small town near Paris.
I admit that I have trouble doing nothing. If there’s a hill to be climbed or a path to be cycled, I’m usually at the front of the queue.
In investing, however, it can pay to do as little as possible. That might come as a surprise to frequent readers of personal finance media. The Sunday supplements have one clear message every week – do something with your investments. Move something, sell something! I guess those publications would generate little interest if they simply said ‘hold tight’.
Even the most savvy investors can be tempted to follow the noise rather than stick with their well-crafted financial plan. The result is normally a large fee for needless fund transactions and little gain to boot.
The old investment saying ‘time in the market, rather than timing the market’ is worth repeating. Statistically, a simple ‘buy and hold’ strategy will provide greater returns than changing direction at every opportunity.
This standpoint is akin to the concept of ‘masterly inactivity’ in medicine. Sometimes the best course of treatment is to sit tight and monitor the situation. Of course, during this ‘watchful waiting’ you can check progress and assess whether there is a need to intervene – or rebalance in investment terms.
Maintaining discipline is key. Set up a well-diversified, well-structured financial plan and then agree to do nothing. Sit back and relax while your money (along with the power of compound interest) does the hard work.