The Value of 'Buy and Hold' Over Time

It’s often said that time in the market beats timing the market.

If you have put anytime into reading about or trading the market, I am sure you would have heard the expression “Buy and Hold”. It is one of the most simple trading strategies but has given some of the most significant returns.

If we narrow this down, using this strategy on index funds rather than stock picking is a great way to earn some interest on your money. Here’s why.

You cannot time the market

Timing the market is one of the most challenging things to do. The greatest investor of our generation, Warren Buffett, had this to say, “We haven’t the faintest idea what the stock market is going to do when it opens on Monday — we never have.” He has always lived by saying, “Time in the market beats timing the market.” Below is an excellent example of how true this can be.

Red Line – represents the growth of $1 invested from 1980 – 2019 if you bought US stocks at the official end date of a recession and sold at the official start date of the next recession.

Black Line – represents the growth of $1 if you bought and left the investment alone across the same period.

As you can see, the black line (Buy and Hold) returned nearly 2.5x more than trying to time the market.

So, you can see the benefit of sitting through those stricter market conditions. Even someone with the experience of Buffett does the same. This is much more important for someone using the market as a secondary way to build wealth.

Trying to “time the market” is a problematic way to harm your returns if you are in for the long haul. After all, if you buy today or next month, how much difference will that play when you return to your investment in 10 or 20 years?

Index beats stock picking

Once again, if the market is a passive way to increase your savings and wealth (rather than being your main focus), index funds will pay greater than individual stock picking.

Diversify across several economies and sectors. For example, the US offers the S&P500 and Nasdaq. The UK provides FTSE100. You could also move into sector-focused indexes such as the Russell 3000 Growth Index.

Individual stock picking should be a minority in your portfolio.

Patience

Wealth is not made overnight. If we go back to the excellent example of Mr Buffett, his wealth grew by compounding the gains he made.

• 21 years old – $20k

• 30 years old – $1M

• 37 years old – $10M

• 47 years old – $67M

• 56 years old – $1.4B

• 66 years old – $17B

• 91 years old – $91B

Be patient with the market. Slowly contribute to it with money you can put aside each month. But most importantly, “buy and hold” on intelligent investments.