Buy and Hold…at your own risk

In bull markets, we are all genius.  But, assuming you have a mid/long-term investment horizon, you will face bear markets as well.  Many people perform their financial planning assuming the market will return about 7% which correspond to the long-term average.  The problem is that it is a “historical average”. There is no guarantee that the market will generate such return in the future and even less over the years related to your specific investment horizon.  Once you have answered the fundamental question which is “What is your expected inflation-adjusted return to achieve your financial goals (e.g.: retirement, others) ?”, then ask yourselves what are the probability that a Buy and Hold strategy will enable you to meet that goal.  The answer is probably very low.  Can you afford to risk your future ?

Here are in summary the Top 5 reasons why a Buy and Hold is a sub-optimal strategy:

  1. Has failed over the last 10 years (secular bear market since 2000)
  2. May very well continue to underperform over the 15 next years (some secular bear market lasted over 20 years)
  3. Offers no defensive strategy when markets are down (30% of the years are down markets)
  4. Traditional asset diversification (e.g.: geographical, sector, stock vs bonds) did not prevent portfolio from crashing in 2008
  5. Last but not least: Buy and Hold generates fantastic profts…for the financial planning industry with little effort and costs…

With few simple investment strategies, it is possible to  reduce your risks of not meeting your financial goals.  TQI combines three complementary investment strategies to generate superior return at a reduced level of risk.

Cons Buy & Hold:
– Buy – Don’t Hold, Leslie N. Mansonson
– Buy and Hold is Dead (Again), Kenneth R. Solow
– Buy and Hold is Dead, Thomas H. Kee Jr

Pro Buy & Hold:
– The Power of Passive Investing: More Wealth with Less Work, Richard Ferri
– The Bogleheads’ Guide to Investing by Taylor Larimore, Mel Lindauer, Michael LeBoeuf, and John C. Bogle

Disclaimer: For general information purposes only.


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