What is the key to achieving the financial success you and your family deserve? Well, for one it’s about keeping it simple—Simple is Sophisticated. Another key is to stop spinning your wheels. In portfolio management terms, spinning wheels or, how long a position is held over the course of a year is called the turnover rate. In other words, if your holdings at the beginning of the year were sold and replaced by new positions, then the turnover rate would be 100%. Here’s a wonderful example, one of my favorite, that Dick Young explains to his readers:
Mr. 3.5% Turnover
In 1992, Forbes profiled David L. Stone of the tiny Beacon Hill mutual fund. “The curmudgeonly manager of the little Beacon Hill mutual fund has some old-fashioned advice for nervous investors: The wisest action is sometimes no action.” Forbes told readers that Stone “…arrives early at his Federal Street office in Boston every day. He reads the newspapers, opens his mail, and waits for a call from State Street Bank, the fund’s custodian, with the previous day’s closing price and cash position. He scribbles those down. Then he reads some more. Then he packs his briefcase and leaves.” And he noted, “People ask me what I do all day. Well, a decision to do nothing is still a decision. It takes effort.” The perfect response for a “standpatter” fund with a 10-year turnover rate of just 3.5%. Like I’ve said, keep it real simple. Practice the ultimate in patience.
Latest posts by E.J. Smith (see all)
- Are You Fully Invested? - July 19, 2019
- Part II: The IRS is Coming for Your IRA - July 18, 2019
- Beat the IRS: Roth IRAs for Your Kids and Grandkids - July 17, 2019