Just Because Everyone Says To Buy And Hold Doesn't Mean You Should Listen

Photo: Flickr / Lars Plougmann

“Time heals all wounds,” say people who believe in the buy-hold myth. “The market will come back. Just wait. Time is on your side.”That might be true if you’re eighteen, but if you’re retired or going to retire next year, time is not your friend—in fact it’s now your enemy.

Let’s say you’re going to live 30 more years. You’ve been used to the idea of growing your money, but for these next 30 years you have to support your money.

If you buy and hold, you risk massive losses and enormous difficulty regaining your footing.

But everybody on the planet is telling you that you need to buy and hold, right? I recently read an article titled, “Portfolio Risk Appears to Diminish Over Time.” And they did mean “over time.” In this article, they looked at years 1926 through 2010.That’s 74 years. How many of you have 74 years to work with? 

And why do the buy-hold people go back more than 70 years? Why don’t they just talk about the last 10 or the last five? Because if they did, it wouldn’t satisfy their argument. The last decade has not been good. The S&P 500 Index publishes the worst 1-year, 5-year, and 10-year periods. The worst year cost investors 55 per cent. Guess which year that was? 2008. “But,” the buy-hold people say, “you have to look at the market long-term.” OK. Let’s consider the worst five year period: Investors “only” lost 50 per cent. See? Your average just went up. You didn’t lose 55% of your investments, you only lost half. And just to be fair, we’ll look at the worst 10-year period. During that time (which just happens to be the last 10 years), investors “only” lost 10 per cent.

To me, this argument proves that you shouldn’t buy and hold unless you want to lose money. Why would you want to experience a year where you lose half your money? Why not get out, protect your principal, wait out the financial storm and then go back in? Don’t you want to enjoy the 30 years you’re on this earth, instead of worrying if the money you need to live on will come back once the market turns around? Time is precious, but it’s not on your side. Neither is the buy-hold philosophy.

About The Author: The host of the popular radio show, “Money Matters with Ken Moraif,” Ken specialises in retirement planning and offers free seminars that help attendees learn to plan their retirements and secure their investments. A certified financial planner, Ken also heads the financial & retirement planning firm Money Matters with Ken Moraif.

All expressions of opinion reflect the judgment of the author as of the date of publication and are subject to change. Information presented does not involve the rendering of personalised investment advice. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s investment portfolio.

MMWKM Advisors, LLC, is registered as an investment advisor with the SEC and only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the advisor has attained a particular level of skill or ability. 

All investment strategies have the potential for profit or loss. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client’s portfolio or that it will match or outperform any particular benchmark. 

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