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Yoshikami: Is Buy & Hold Dead?

Is the notion of "buy-and-hold" or "set it and forget it" approach to investing dead? Is it time to question the wisdom of this approach?

This apparent tried and tested method of investing may have worked in the past, but many investors are starting to question the success of this philosophy moving forward. With a paradigm shift in global economies, the increasing inter-connectivity of companies and markets, as well as the fundamental shift in trade and labor, perhaps now is time to reassess this approach. After all companies like Citigroup and Fannie Mae are a much different investments than they were in the past. Buy and hold did not work out well for these two once might giants.

The European Debt Crisis - See Complete Coverage
The European Debt Crisis - See Complete Coverage

Yes its true that the state of the global economy is changing much faster than many are able to comprehend.

No matter what any experts tell you about their wise interpretation of current global events, no one has a definitive hold on what's really going on.

This means that none of us is ever going to be able to allocate assets and select investments with complete and perfect information. But what seems to be clear is that the world is changing and many of the same rules that have applied before are ripe for adjustment.

Tactical adjustment in a world of change makes sense.

It's complicated to be sure as you make decisions on the right strategy to implement. What we face now as investors is not just one or two moving parts; we have a multitude of dynamic variables morphing all at the same time... a global financial ecosystem in flux. Components in this rapidly changing drama include the rise of Asia and Latin American, shift in technology and business practices, currency challenges, low interest rates with the specter of high inflation in the future, massive consumer debt levels, and high government deficits. The list goes on and on and on.

What investors should focus on is to take a more proactive and responsive view towards their portfolio so that the asset mix is dynamically adjusted to adapt to market and economic trends.

Instead of just "buy-and-hold", investors should "buy-reassess-adjust-maybe hold".

Each decision should be reassessed on a regular basis and adjustments made as needed. What you are trying to do here is to make tactical shifts to your asset allocation weightings based on current market conditions, and to take advantage of anticipated economic and financial market developments.

Don't abandon the long-term strategic approach to investing; buying and putting together a diversified basket of assets based on which investments are likely to move you successfully towards your risk-reward profile. That helps you to focus on the end game. But in the meantime, also look at shorter-term tactical moves on an ongoing basis. Some of these short-term decisions may turn into a "hold" position. But you must have the flexibility to adjust as needed.

Even legendary investors like Warren Buffett adjust their strategies based on current conditions. He sees opportunity and he adjusts. Just take a look at the investment decisions he made recently: Goldman Sachs , General Electric , as well as taking an equity stake in BYD Company, a totally unknown firm based in China that makes cars and rechargeable batteries. These are tactical moves made by Berkshire Hathaway ; reality is that Warren Buffett is more tactical than most people realize.

Patience is required while we watch our asset and investment decisions play out. And yes, it is important to keep an eye on the big picture. But more than ever, you need to watch your decisions on the short term as well and respond to current conditions.

All the more important in this day and age where the only constant is that change happens.

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Michael A. Yoshikami, Ph.D., CFP®, is Founder, President, and Chief Investment Strategist of YCMNET Advisors, Inc., a registered investment advisory firm (www.ycmnet.com). He oversees all investment and research activities of YCMNET. He is a respected lecturer speaking frequently on market issues, tactical asset allocation, and investment strategy. Michael and YCMNET were ranked as one of the top 100 investment advisors in the United States for 2009 by Barrons. He appears regularly on CNBC and CNBC Asia and can be reached directly at m@ycmnet.com.