February 26, 2015
Buy and hold is a wise investment strategy that provides higher returns AND lower stress. Why?
Buy and hold is a wise investment strategy that provides higher returns AND lower stress. Why?
You want to hold the market for the long term so you get the average return that it generates. If you jump in and out you are not actually getting the average return because you are not in the martket the full time. You can not tell when the right time to get in and out is so you are better off just buying and holding until you plan on using that money. You can dollar cost average your investments to get the median price for the stuff that you buy. Why would you want to do more work for less return, that is what timing the market gets you, you just want to get in and stay in, rebalance once an year and sell your winners and buy your lossers. That is the only time you will be wanting to adjust your holdings.
There is always the chance that you could get lucky and beat the market by continuously buying and selling your stocks, bonds, and other investments. Everyone knows of someone who has done it, they buy low and sell high and make a greater return than what the market made. However, what they don’t tell you is all of the times that they were not so lucky and all of the time and effort they had to put into watching market conditions to see if they could buy/sell at just the right moment.
Buying and holding is a much wiser investment strategy because it basically lets the market do the work for you. On average, an individual investor’s return on their set of stocks is much lower than the returns that could have been made from holding an index fund for example. This doesn’t mean you shouldn’t pay attention to what is going on in the market, but holding on to your investments for the long run will save you a lot of time, effort, and stress and give you a higher return on average.
Well said, you two. Let’s recap.
(1) Buy and hold owning broadly diversified no-load index stock and bond funds provides you the best probability of receiving the highest return over time (in any given year, anything can happen).
(2) Trying to get in and out of the market or pick the right markets to be in is a loser’s game, which you should avoid at all costs (that was intentional).
(3) This approach reduces the stress as you learn to ignore the market ups and downs, and the pundits who try to predict the future (with very poor results).