Author Topic: Buy&Hold - and then? How to properly do b&h?  (Read 3988 times)

DaKini

  • Bristles
  • ***
  • Posts: 340
  • Location: Germany, Munich area
Buy&Hold - and then? How to properly do b&h?
« on: January 11, 2014, 06:03:35 AM »
Hello,
i am investing in index funds since about 2007 (being ~30 now) and followed a b&h strategy. Doing that allowed me to see the DAX30 first crashing then recovering and reaching new all time hights recently, knowing that my dividends helped with hat after i invested a lump sum around 2007. Despite making me confident in the markets longterm uptrend, i wonder if i would not be better of using any of two other strategys. I hope you could point me to some scientific research or at least give me helpful insights.
MMM talks in his blog about constantly investing which i read as b&h until i retire and im not yet confident enough itis really that easy.

1. Buy&Hold&Buy
I curently establish a quarterly investing approach to save on trading costs.
I wonder, if i would be better of, if i just defer the individual investments and wait for a good buy opportunity. But what should  be the longest waiting time to invest in case prices go constantly up? Is it significant to try to time the market this way, trying to get a better price for my quarterly investments? It would be around 2100 each quarter.
I fear missing some of the markets returns by delaying buying to just maybe get a better price. But especially in a downward trend due to bad economical stats this could work? So is it wise to only defer buying in downward markets and buy as soon as possible in a good economical state?

2. Sell off tops
Does selling off tops make any sense long term?
This is essentialy another markettiming method i think, is that correct?
Especially if i can sell off tops tax free using my not maxed out tax exemption, i have the weird idea that this could help the overall return. However then the question remains: when is a top?


Thank you for kicking me in the right direction, i feel that i just need some reassurement of more experienced investors that timing the market is purely luck and i should stick to the simple quarterly investing. However i could be wrong...

mpbaker22

  • Handlebar Stache
  • *****
  • Posts: 1095
Re: Buy&Hold - and then? How to properly do b&h?
« Reply #1 on: January 11, 2014, 06:40:27 AM »
Hello,
i am investing in index funds since about 2007 (being ~30 now) and followed a b&h strategy. Doing that allowed me to see the DAX30 first crashing then recovering and reaching new all time hights recently, knowing that my dividends helped with hat after i invested a lump sum around 2007. Despite making me confident in the markets longterm uptrend, i wonder if i would not be better of using any of two other strategys. I hope you could point me to some scientific research or at least give me helpful insights.
MMM talks in his blog about constantly investing which i read as b&h until i retire and im not yet confident enough itis really that easy.

1. Buy&Hold&Buy
I curently establish a quarterly investing approach to save on trading costs.
I wonder, if i would be better of, if i just defer the individual investments and wait for a good buy opportunity. But what should  be the longest waiting time to invest in case prices go constantly up? Is it significant to try to time the market this way, trying to get a better price for my quarterly investments? It would be around 2100 each quarter.
I fear missing some of the markets returns by delaying buying to just maybe get a better price. But especially in a downward trend due to bad economical stats this could work? So is it wise to only defer buying in downward markets and buy as soon as possible in a good economical state?

2. Sell off tops
Does selling off tops make any sense long term?
This is essentialy another markettiming method i think, is that correct?
Especially if i can sell off tops tax free using my not maxed out tax exemption, i have the weird idea that this could help the overall return. However then the question remains: when is a top?


Thank you for kicking me in the right direction, i feel that i just need some reassurement of more experienced investors that timing the market is purely luck and i should stick to the simple quarterly investing. However i could be wrong...

How do you determine a downward trend?  It would have really sucked to buy a ton of stock during the downward trend in December of 2007.  You would still be up 20-30% but you could have averaged in lower if you had followed a set time frame of investing.

I have to say, I'm terrible about the weekly/bi-weekly balancing.  I don't automate anything, so I just wait every 2-3 months until I have a few thousand dollars.  Then I throw it all into a vanguard fund.

I do own a few hold-over individual stocks.  For tax purposes, it's useful to hold on to them, so I can sell the losers and deduct.  Chances are I won't be getting 25% gains in the next year.

ShavinItForLater

  • Stubble
  • **
  • Posts: 149
Re: Buy&Hold - and then? How to properly do b&h?
« Reply #2 on: January 11, 2014, 01:04:29 PM »
The proper way to do buy and hold is simply that, you buy and hold it indefinitely, until you need it for it's intended purpose.  Both of your ideas are market timing, and unless you're specifically looking for market timing advice, I'd advise against it.  There is no way especially for an amateur investor to consistently and accurately predict the tops and bottoms of the market, and the recent trend of up or down is included in that--just because the market goes up, doesn't mean it won't keep going up (this year proves that with the 30% upswing in the S&P 500 index).  Same with downturns.  If your strategy is buy and hold, then just keep investing regularly throughout the ups and downs.

Dollar (or in your case Euro) cost averaging is the general approach I and many others would recommend--for every savings period, add the same amount in Euros to your mix of mutual funds/ETFs/etc.  This does naturally build in a bit of buy low/sell high, because the same Euros will buy more shares when they are cheaper, and less when they are more expensive.

I have money automatically invested for me out of each paycheck, every 2 weeks, to my retirement account and my health savings account.  Quarterly seems like a pretty long time to wait between investments to me, but if the amounts are small enough and you don't have a zero or low transaction cost option then I suppose it might make sense.  If you had a relatively low expense ratio mutual fund option that with more frequent deposits might be my preference, even if once a quarter you transferred it to the ETF/stock or whatever it is you're buying now.

Tyler

  • Handlebar Stache
  • *****
  • Posts: 1158
Re: Buy&Hold - and then? How to properly do b&h?
« Reply #3 on: January 11, 2014, 01:27:42 PM »
Rebalancing your chosen asset allocation using percentage bands or on a set schedule (usually once a year) is a good mechanism to buy low or sell high without trying to time the market.  For new money going in, just buy the lagging investment (think of it as being "on sale") to keep it at the target percentage.


« Last Edit: January 11, 2014, 01:41:29 PM by Tyler »

DaKini

  • Bristles
  • ***
  • Posts: 340
  • Location: Germany, Munich area
Re: Buy&Hold - and then? How to properly do b&h?
« Reply #4 on: January 11, 2014, 02:00:49 PM »
Thank you very much!
I assume that looking at the charts is forcing me into thinking that its possible to predict the bigger picture and act upon this. Probably i have been brainwashed by all the market news and crash forecasts rumouring here in germany.
I think the german market is not so expensive currently because of the p/e ratios beeing barely at historical average.
But how to get rid of that transaction-generating evil thoughts from the finance industry?

(Edit) i fiund a good solution to the last question. There are plenty of threads in this forum section to cure me from this kind of thinking. In fact, i am ashamed i even opened that thread. Thank you very much for your patience and not stoning me outright. It is just so hard to trust your own rational mind and knowledge when nearly everbody around you suggests the opposite.
« Last Edit: January 11, 2014, 03:51:17 PM by DaKini »

jnik

  • Stubble
  • **
  • Posts: 149
Re: Buy&Hold - and then? How to properly do b&h?
« Reply #5 on: January 12, 2014, 08:55:44 AM »

Rienk

  • 5 O'Clock Shadow
  • *
  • Posts: 26
  • Age: 33
  • Location: Netherlands
Re: Buy&Hold - and then? How to properly do b&h?
« Reply #6 on: January 13, 2014, 03:12:56 AM »
Financial Independence blogger Jim Collins wrote an excellent introductory series on the stock market that you may be interested in:
http://jlcollinsnh.com/stock-series/

Hopefully that will make it more clear to you exactly why market timing is a bad idea.

k9

  • Stubble
  • **
  • Posts: 241
  • Age: 39
Re: Buy&Hold - and then? How to properly do b&h?
« Reply #7 on: January 13, 2014, 06:58:50 AM »
A good practice is to keep x% of your allocation in stocks, rather than 100% (the choice of x is left as an exercise to the reader but can be as low as 5 and as high as 50 or even more) and 100-x% in bonds/cash, and rebalance every time you get too far away from x, by either buying some more stocks when x is too low and sell some when x is too high.

It gives good results, making you sell on tops and buy on lows without having to think about it, i.e. without attempting to time the market. The difficult part is actually doing it (you usually don't want to sell on hyper-euphoric booming periods or buy when the end of the world is knocking at your door).

Of course, you can even always be 100% in stocks, and this last century that would have generated a lot of wealth, but you need steel nerves and be mentally ready to potentially lose everything.

aclarridge

  • Guest
Re: Buy&Hold - and then? How to properly do b&h?
« Reply #8 on: January 13, 2014, 07:49:40 AM »
Stick to the quarterly investing. Those strategies look like market timing to me, which isn't worth trying. Don't get greedy, you are doing fine.

DaKini

  • Bristles
  • ***
  • Posts: 340
  • Location: Germany, Munich area
Re: Buy&Hold - and then? How to properly do b&h?
« Reply #9 on: January 13, 2014, 08:48:22 AM »
Thank you for the very funny video, and also thanks for the link, already dug through his blog, it is good literature