Beyond Buy-and-Hold #34
I promote myself as the most severe critic of Buy-and-Hold Investing alive on Planet Earth today. Please don’t think that it follows that I am not grateful for the many important things that the Buy-and-Holders got right.
Set forth below is a list of ten powerful insights brought to us by the smart and good and hardworking people who developed the Buy-and-Hold concept:
1. It’s the Long-Term That Matters
It is human nature to focus on the short-term. This never works in stock investing. Good strategies often produce poor results for a time and poor strategies often produce good results for a time. To be successful, you must be willing to stick with a strategy long enough for it to pay off.
2. Keeping Costs Low Makes a Big Difference
Too many investors spend their energies fussing and fretting over things they cannot control. That’s a waste. You control how many transactions you enter. So you have a means available to you to limit your investing costs. Gaining a small edge makes a big difference in the long run because of the compounding effect.
3. Indexing Is the Best Choice for Most Middle-Class Investors
Most of us don’t have available to us the time needed to do the research required to pick stocks effectively. Indexing lets us tap into the benefits of stock investing in a simple and easy way.
4. We All Need to Be Invested in Stocks
The returns on stocks are too good to pass up.
5. Research-Based Strategies Are Best
Discussions of stock investing not rooted in what we have learned from academic research go around and around in circles. The human mind can rationalize just about anything. Research gives us something objective to turn to for effective responses to sales talk that appeals to our emotions.
6. The Historical Stock-Return Data Offers Solid Guidance
Lots of strategies can be presented in ways that make them sound good. Have they worked in the real world? What do the numbers say?
7. Tune Out the Noise
Most investing advice is actually harmful. The best advice is simple, straightforward, commonsense advice. What makes investing difficult is the need to remain removed from the influence of all the junk that will distract you and pull you in the wrong direction.
8. Keep it Simple
90 percent of what the media generates doesn’t matter. And it will confuse you if you pay attention to it.
9. The Average Market Return Is Plenty Good Enough
The average long-term return in the United States is 6.5 percent real. That’s good enough to finance a solid middle-class retirement plan. Approaches that promise returns higher than that for people who are not spending a good bit of time on investing can fairly be characterized as too good to be true.
10. Short-Term Timing Doesn’t Work
Stock returns follow a random walk in the short term. So trying to guess in which direction they are headed is almost surely going to hurt you.
Rob Bennett does not believes that stock prices are a retirement risks. Rob’s bio is here.