Understanding the Need to Innovate

Smart Money posted an article called Investing Reinvented: A Smart Money Master Plan. The article recaps what has gone wrong with traditional investing, including some unintentionally funny quotes from financial advisors and then offers some ideas (without much detail) about how to start making changes.

If this marks a genuine recognition that markets evolve and so portfolio success must evolve, then I am all for it. If the article is merely a bit of investment populism, then it is less useful ... but still, to the extent the magazine targets people who are just starting out, perhaps the article will cause more people to seek out ideas that are more in line with reality.

Reality can still include buy and hold, but long-term holds sometimes need to go. When I buy a stock or an ETF, I certainly hope to hold it forever. Over the years I've blogged about plenty of names that I sold for various reasons (good and bad) or other names where partial sales made sense. I've labeled this as "buy and hope to hold." If something gets wildly overvalued, works out badly or somehow changes itself, then it needs to be sold. Being in touch with this requires time spent monitoring a portfolio's holdings.

I would add that the "buy and hope to hold" should probably avoid broad-based indexes and countries that seem to be on shaky fundamental ground. The ETP industry obviously provides access for all sorts of countries and themes, which greatly democratizes the chance for portfolio success ... which I think the Smart Money article is alluding to.

In addition to buying and hoping to hold, the article makes a point that will be familiar to long-time readers: Being willing to explore new exposures. There is increasingly more recognition of the importance of minimizing losses during large market downturns. Some of the "new" exposures can help with this -- currency funds, hedge fund replicators, absolute return and so on.

That markets evolve -- and that success in evolving markets requires innovative products and then end-users sifting through these innovative products -- should be intuitive, but apparently it is not. Hopefully articles like the one linked above help mainstream investors start to think about things differently. There is visibility for meaningful change in how people fund their retirement years; investors who will not seek (competent) professional help (this will be most people) need to be more engaged in determining their financial future -- much more engaged.