What’s the equation for long-term, consistent returns?

Clients and advisors ask me–all too frequently–“What is a good ETF/Mutual Fund/Stock to invest in?” Generally, these questions are accompanied by some type of buy-and-hold comment indicating these monies are for retirement.

Let’s break this question apart in this way: (1) Goal (2) Strategy (3) Product

Goal
The goal for most every investor–whether implicit or explicit–is an upward trending, consistent return.

Strategy
The significant majority of investors have this concept of “buy-and-hold” fused into the foundation of their investment framework.

Product
One. Quite frankly, it doesn’t matter which one (e.g. ETFs, stocks, etc). What matters is that it is just one.

With the investment landscape as it currently stands, I can’t write an equation in which this computes. One (or more) of these variables should be changed. That is to say, a buy-and-hold strategy with one long term investment will not result in consistent, upward returns. Certainly, there are investors implementing this strategy, but this is a very inefficient system.

I came up with this analogy for a former math teacher, so I hope you can appreciate it as well: x + y = 5

The question is: What is the non-variable value of “y”?

The answer is: It doesn’t exist.

The reason it doesn’t exist is because “y” is dependent on “x”–and vice versa. There are an infinite number of possibilities for “y”. To be accurate, the question in the first sentence is more likely equivalent to: “Tell me what the most likely value for ‘y’ is.” In this scenario “y” is, of course, the investment and “x” is the dynamic landscape that is investing. Perhaps there will come a time for which buy-and-hold is once again an appropriate strategy to achieve consistent growth. But currently, “x” equals “quantitatively tactical.”

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