One of the frustrations of managing money is the need to review investments ever so often.
Several clients ask me “Can’t I just invest in some good stocks and forget about it?”
They are, no doubt, driven partly by the anecdotes of folks who bought a super-stock ages ago. And the grandkids are now living lavishly off the dividends.
Funnily, you never hear of the investments that were complete duds or where the companies have vanished.
Forget anecdotes. Look at the data.
This data is from the US but the lessons are universal.
The S&P 500 is a list of the largest 500 companies in the USA.
In the ’60s and ’70s, any company on this list remained on it for about 30–35 years. So picking a good stock from this list and holding on to it was a sensible idea.
However, the world is changing. And it is changing faster and faster. New technologies disrupt old ways of doing business. And career norms are changing alongside. The idea of life-time employment is gone. No one wants to hang around with the same corporate employer all their life.
So it should be no surprise that the average life span of companies is falling. The average time spent on the S&P 500 list is now less than 20 years.
That means, the super-stock-picks of your youth will barely be on the list by the time your kids get to college.
The moral of the story
What worked in the ’60s, won’t work now. Investments need a watchful eye. Don’t invest-and-forget. Don’t invest on tips.
Either do your homework and review it regularly. Or get a finance professional to do it.
If you need help managing your investments, here’s how we think about money.
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