To trade or hold?

The investment world has been looking better recently, according to host Mary Walden. Of course it’s always subject to ups and downs. This raises the question of how an investor should deal with market fluctuations.  She asks her husband, economist Mike Walden, should the investor try to anticipate changes and move money accordingly or just let his investments ride?

Mike Walden “Mary, this is probably the core debate in investing, and in fact the debate really has some formal names. ‘Managed investing’ says that you do try to anticipate those changes. You do try to move money around based on where you think the economy is going to go. ‘Passive investing says’ no you can’t do that. You may be able to do that a couple of times. You may get lucky, but over the long-term you can’t consistently do that.

“And so there are investment approaches out there that people can use to emphasize one or the other. Again, the managed approach says that you want to hire, for example, if you don’t have people that have knowledge and skills that know about the economy.  They know about money, and they’re going to move your money around to try to so-called ‘beat the market.’

“There are other approaches that say, no you can’t consistently beat the market, and if you try, you’ll probably actually end up doing worse than if you didn’t try. And what you simply need to do is buy a diversified set of investments buy and hold them. So, this has been a big debate in economics. It’s been fought on the conceptual level. It’s also been fought on the empirical level.  I think it’s very, very important for people to understand this debate does exist.”

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