Is buy and hold unrealistic?

[milesdividendmd]

Losing is much more painful than winning is enjoyable.

but there is no losing during a crash. Your stock purchase depreciate and their value is adjusted, but you have not lost money. Until you sell.

What if you need to sell stock to fund your retirement?

What if your stock's value goes to zero, bankruptcy is declared and there is not enough capital to pay debt holders?

But that is not really the point.

Having your wealth's nominal value decline precipitously is very painful to most people. In fact it is more painful than having its nominal value sky rocket is happiness inducing.

Buying and holding is possible, and simple, and smart.

But it is also very hard.

[Khan]

Buying and holding is possible, and simple, and smart.

But it is also very hard.

Which is why if you don't love the stock market, you should plug your ears, never turn on CNBC/Fox Business/Bloomberg, and rebalance(if necessary) once per year.

[RapmasterD]

Adjusted for inflation, buying and holding was pretty awesome between 1984 and 2000. It has proven to be pretty awful since 2000. I base this on an inflation adjusted price chart, including reinvested dividends, of the S&P 500.

Go ahead and run the numbers yourself: http://dqydj.net/sp-500-return-calculator/

[LennStar]

Adjusted for inflation, buying and holding was pretty awesome between 1984 and 2000. It has proven to be pretty awful since 2000. I base this on an inflation adjusted price chart, including reinvested dividends, of the S&P 500.

Go ahead and run the numbers yourself: http://dqydj.net/sp-500-return-calculator/

Thats because
1) both are quite short times for stock based retirement duration
2) If you put it at 2000 you are just before a big crash. Of course, if you invest all your money at a high (instead of growing your stash through at least one high and low), you get less out of it.

And you have to remember that the S&P 500 is not the world and US inflation is not the worlds infaltion ;)

Just putting the end date before the last crash (2007) gives you an 3.98% inflation adjusted return in the last 10 years.
Lets assume you are a WW2 mustachian GI. Your first thing in adult life was fighting in the war. After that you lived as a mustachian and retired in 1960 and put all your money in the S&P 500.
Your inflation adjusted return at 2013 would be 5,7%
Or this GI lived in germany after that and used the DAX. Same start, 1960 (and 62 was a crash, dont know about the US), end in 2013. Return (non-inflation) is ~7%. With inflation this would also get out at least 4%, which is considered the save withdrawal rate.

Of course, if you invested all your money in the DAX in the lowest end of 2008, you would have a yearly return above 20% today. If you bought the Nikkei in the spring of 2013 and sold it half a year later, I think it was ~50%? (That girl band - rising nikkei, rising skirt hem line - really worked LOL)

[RapmasterD]

I know that for many, the time periods I noted seem arbitrary. For me they are not. I've been in the working world for the past 30 years and one month. For 16 of those 30 years the stock market has been great. For the last 14, not so much from a buy and hold perspective. I look at the S&P 500 as a bellwether since indexes tend to move up and down pretty much in tandem -- and because there is so much information readily available on it.

I also realize my post was off topic, so to answer the question -- no, I don't think buy and hold is unrealistic -- any more so than a 52 year old guy being able to knock out 34 pull ups in 10 minutes. And yes, that's a brag. Oops!

[chasesfish]

I'm going to agree with Christof here, the only sector that really slashed their dividends were the financial related stocks,p which should have been 10-20% of a portfolio.  Most other companies stopped increasing dividends.  25k/yr probably feel to 21k.

If you were in the 90+% that kept their job, the deals on stocks were incredible

[blackomen]

I'm not sure what's the best plan for everyone but I'll say that constantly trying to time the ups and downs of the market is not a realistic investment plan for most people.  It's difficult enough even without being psychologically demoralized whenever one misses a major market rally by staying in cash or getting in only to see the market crash shortly after.

Buy and Hold individual stocks?  I don't recommend ever buying individual stocks except maybe to speculate with money you can afford to lose.  Even then, buy and hold would not be a viable strategy.  Most stocks have zero or negative real returns over the long run except for a few rare picks with extraordinary returns..  Google "positive skew" if you want to know more.  I'd get out when things get ugly when holding individual stocks.

Buy and Hold stock indices (e.g. SPY, VTI, etc)?  This seems like a more reasonable strategy as long as it's representative of the broad US stock market..  unfortunately, you'd still feel the brunt of bear markets like 1987, 1990, 2002, 2008, etc.

Buy and Hold a diversified portfolio of stock, bond, and maybe commodity indices?  This is what I'll go with in the long run with periodic rebalancings (as previously mentioned.)  Of course, finding the optimal asset allocation is as much of an art as a science and depends on each individual's circumstances and risk tolerances.  I'd start with the 60/40 or the Permanent Portfolio as a base allocation then tweak these to better fit your preferences.

[thepokercab]

To me, it just seems to be a question of risk.  I buy and hold, and will continue to do so, but I also have a semi-tenous job situation, akin to a contract situation, whereby every two years there is a good chance I will lose my job and have to find a new one.  Because of that, I keep a healthy amount of cash in reserve in case I need to go awhile between jobs.   I don't think it would be smart for me, in that situation, to invest every one of those dollars into a buy and hold strategy.   

So, no, I don't think it is unrealistic to buy and hold, but you need a plan for the lean times.   

[Grog]

What if you need to sell stock to fund your retirement?

What if your stock's value goes to zero, bankruptcy is declared and there is not enough capital to pay debt holders?

But that is not really the point.

Having your wealth's nominal value decline precipitously is very painful to most people. In fact it is more painful than having its nominal value sky rocket is happiness inducing.

Buying and holding is possible, and simple, and smart.

But it is also very hard.

if you have to sell stocks to live (because you are retired), they should be stocks/ETF/shares of fund that you have purchased 25+ years ago and selling during a crash means that you are cashing in an average return of 2-3% maybe over 25 years instead of 10+%.

I've noticed that is really helpful to calculate the alternative, the virtual development of leaving your money in cash. Create a spreadsheet where you put the same amount of money that you used to purchase stocks in a virtual savings account at 0.8% with 2% inflation and calculate over the year your "baseline". That is actually the only true benchmark, the minimal-risk alternative, against which you can compare your portfolio value.

[milesdividendmd]

What if you need to sell stock to fund your retirement?

What if your stock's value goes to zero, bankruptcy is declared and there is not enough capital to pay debt holders?

But that is not really the point.

Having your wealth's nominal value decline precipitously is very painful to most people. In fact it is more painful than having its nominal value sky rocket is happiness inducing.

Buying and holding is possible, and simple, and smart.

But it is also very hard.

if you have to sell stocks to live (because you are retired), they should be stocks/ETF/shares of fund that you have purchased 25+ years ago and selling during a crash means that you are cashing in an average return of 2-3% maybe over 25 years instead of 10+%.

I've noticed that is really helpful to calculate the alternative, the virtual development of leaving your money in cash. Create a spreadsheet where you put the same amount of money that you used to purchase stocks in a virtual savings account at 0.8% with 2% inflation and calculate over the year your "baseline". That is actually the only true benchmark, the minimal-risk alternative, against which you can compare your portfolio value.

Grog,

I like your strategy. It's a nice use of anchoring.

Despite this, I suspect that most people (including myself) would internalize their gains and see the loss in value as an actual loss.

In other words, rationally you're a hundred percent correct, but for most rational people,(Including myself) it doesn't really matter. The way we experience such events is largely behavioral (ie irrational.)

[Bateaux]

I've used buy and hold along with dollar cost averging for over 20 years now.  It's worked pretty well.  I'm still working a few more years because the money is just too good.  However, even a 50% drop can't destroy me now.  In fact since I'm still working I'd like to see a 20 to 25% drop just for the buying opportunities. My job is all but recession proof.

[milesdividendmd]

Adjusted for inflation, buying and holding was pretty awesome between 1984 and 2000. It has proven to be pretty awful since 2000. I base this on an inflation adjusted price chart, including reinvested dividends, of the S&P 500.

Go ahead and run the numbers yourself: http://dqydj.net/sp-500-return-calculator/

First off nice job on the pull ups. You are an animal!

Second of all your description of the S&P says more about the challenges of holding 100% stocks, than the challenges of buy and hold.

You are not implying that you would be better of actively managing a 100% stock portfolio are you?  Those numbers would certainly be more dire.

[ender]

Adjusted for inflation, buying and holding was pretty awesome between 1984 and 2000. It has proven to be pretty awful since 2000. I base this on an inflation adjusted price chart, including reinvested dividends, of the S&P 500.

Go ahead and run the numbers yourself: http://dqydj.net/sp-500-return-calculator/

No one invests all their money into the market at a single point in their life.

And what that calculator tells me is that even in a time you cherry picked to be bad, a 4% withdrawal rate would still have worked out such that your total portfolio value has increased since January 2000.