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Did The Last Ten Years Invalidate A Buy And Hold Investing Strategy?
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Does two major bear markets in 10 years, and the recent whipsaw when stocks fell sharply in 2008 and rose sharply in 2009, mean that "buy and hold" investing is dead? A lot of pundits are saying so. Investors who held stock portfolios over the last 10 years made very little money, they argue. Those who sold when things turned sour and bought back in on the recovery did better, protecting their capital while enjoying some nice gains.
These arguments pop up periodically during bad times for the financial markets. The last long period of doubt corresponded with the high inflation years and successive bear markets that lasted from the early 1970s through mid-1982.
No Successful Timers
Some of the most successful academics and investment managers recently told the Journal of Indexes that buy and hold investing remains valid, recent history notwithstanding.
"I almost have to laugh when I get a question like that," said Larry Swedroe of BAM Advisor services in re-action to the "is buy and hold dead" question. "Whenever we get some kind of crisis, all those who believe in active management come out of the wood-work with this non-sense. All that shows is that they don't know the basics of investing."
Burton Malkiel of Princeton University and author of "A Random Walk Down Wall Street" said it is natural for people to say they should have sold in late 2007 and bought back in at the bottom this past March. "We all have 20/20 vision in retrospect. The problem with it is that nobody and I repeat, nobody can time the market," he said. .
Jeremy Siegel of the Wharton School and author of "Stocks for the Long Run" noted that the recent bear market reaffirmed that stocks pay high long-term returns because they can be very risky in the short term. But still beat other assets over the long haul, he said.
Error protection
Buy and hold also prevents investors from making errors when the going gets tough, says Gus Sauter of the Vanguard Group. "A buy and hold strategy helps prevent us from acting in a knee-jerk fashion and under-performing” by making bad decisions when the market soars or falls," he said.
©OSB Financial Services, INC
©2009, Kelly Ruggles Web site
Kelly C. Ruggles is a fee-based financial planner located in Spokane.
Kelly C. Ruggles, President of American Reliance Group, Inc., a registered investment advisor.
Kelly Ruggles is the author of "The Financial Playbook" for Retirement
Kelly C. Ruggles does not intend to provide personalized investment advice through this publication and does not represent the strategies or services discussed are suitable for any investor. Investors should consult with their financial advisors prior to making any investment decisions
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