10 Feb Is Buy and Hold Dead, Nah it’s just Volatility Stupid!!!
In todays world is buy and hold a viable strategy, or as I also call it relative return investment management. Why? Market downturns have certain investors trying to time the market. Dalbar, a financial services research firm published an interesting study. From 1988 to 2009 the S&P Index returned 8.2% while the average equity mutual fund investor returned 3.17% during that same time period, why, poor decisions on when to enter and exit the market. Wow, buy and hold really works if you had the emotional stability to remain fully invested for 20 years of secular and cyclical bear and bull markets, along with the impact of volatility through various asset classes. What do I mean by market volatility?
Let us assume for a moment the market has some large swings(remember 2008?) We invest $100,000, in year one of a high volatile maket returns 26%, your portfolio is valued at $126,000, year two the market return is -35%(sound familiar?) your value is now $81,900, the third year the market rebounds with a return of 17% your ending balance is $95,823. What would happen if we adopted a portfolio strategy that seeks to lower volatility utilizing our sailing and rowing approach. Year one the market returns 8%, your portfolio value is $108,000, year two the market returns -10%, portfolio value is $97,200, and the third year the return is 10%,your ending value is $106,920.(these two portfolios are hypothetical in nature and not representative of any specific investment) High levels of volatility can adversely affect a portfolio return not to mention your comfort level. Remember, however, that no investment strategy can assure success or guarantee against loss.
Our next article will discuss how the amount of market exposure in your portfolio can be the most important piece of the puzzle.
(Past performance is no guarantee of future results. Inexes are unmanaged and cannot be invested into directly)
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.