As people try to pursue the mission of patient, long-term investing in mutual funds, one thing keeps threatening to knock them off track: change.
Investors themselves change their circumstances, their goals or just their minds. Meanwhile, funds change managers or strategies, even as investment conditions in the markets change - usually in some way that nobody expected.
Personal change can come in the form of a new job that increases your income, or a new problem or responsibility that increases the financial demands you must meet.
Even if all is pretty quiet on the home front, you may notice that a fund you own seems to have changed its style, or maybe has started to lag behind the competitors it once consistently led. Or a bull market could mutate into something different while you weren’t looking.
“In the sixth year of an economic recovery with inflation at only 3 percent, interest rates steady and the deficit headed in the right direction, no one wants to see this economic nirvana change,” observes James Stack, an investment adviser in Whitefish, Mont. “Yet change it will.”
All this tends to make buy-and-hold investing, with all the compelling arguments in its favor, a lot more difficult to practice than it sometimes looks on paper.
Let’s suppose you want to accumulate savings for some goal many years in the future, such as retirement or a child’s college tuition. What’s an investor to do? Well, first of all, while many a good fund can be bought and held, that doesn’t mean that it can be bought and forgotten.
Every once in a while, you are well advised to check over any and all funds to see whether they still fit the description for which they were bought in the first place, and whether that description still jibes with your requirements.
A convenient interval for this review may be annually, at about yearend, when you have a chance to review your funds’ performance for the year just past as well as for longer periods. If you have more time, you can monitor your funds more frequently than that.
Regular reviews may help to combat inertia and complacency - common human failings of investors that can hurt your chances for success.