Where are we at in the great investing debate about the buy and hold strategy?
Generally, the buy and hold strategy has proven to be one of the best strategies out there. Since the early 1900's every ten year period has shown positive growth for the stock market.
When we went through the recent downturn and recession, a whole bunch of people wrote articles saying that the buy and hold strategy was dead.
Is it dead?
It is easy to write an article at the low point of a stock market crash and show that there has been no gain in stock value for the past ten years. However, now that the stock market has rebounded, the last ten years doesn't look as bad as it did 6 months ago.
What should we do going forward? Can we still buy index or mutual funds for the long-term while rebalancing the portfolio once or twice a year?
First, it is the easiest way for many people to get involved in the stock market. Most people don't have the time or knowledge to actively manage their investments. Buying stocks and bonds through 401K and mutual funds and holding onto to those investments is how most people will enter and remain in the market. Yes, there will be good times and bad, but for most people the buy and hold strategy is the only option besides not saving at all.
Second, it matters how long you have before you reitre. If you are within ten years of retiring and you need more money, then a more active approach to investing may be required. However, if you start early and have decades before you plan on retiring, then you can invest every month in a buy and hold strategy while taking advanatage of the powers of compounding interest.
Last, you cna just buy and hold without rebalncancing your portfolio and taking a general look at the market once in awhile. It is still good to understand the market, but I am a big supporter of the buy and hold strategy since it is the only strategy available for most investors and it has proven to be a winner more times than not.
That is an interesting point about how people need to buy and hold because that is all they are capable of doing. This doesn't mean people who are too dumb to invest, but also doctors, lawyers, entrepreneurs, etc... who don't have the time to look at earnings reports and trend charts.
For me, I would have trouble finding an hour per day to do that stuff and that most likely wouldn't be enough to be successful as an active trader.
Also, I just don't have an interest in being an active trader. I like to focus on my business, politics, my family, sports, etc...