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Why Buy And Hold Doesn't Work Anymore

Friday, March 2, 2012 - 6:24 AM
From CNNMoney.com
[Andrew Lo, an economist and finance professor at MIT's Sloan School of Management] argues that the buy-and-hold method of investing (long considered gospel by index fund managers and this magazine) doesn't effectively limit the risks of today's markets.

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Ken TuminKen Tumin5,442 posts since
Nov 29, 2009
Rep Points: 123,743
1. Friday, March 2, 2012 - 6:54 AM
Lo is an active manager. Few active managers would suggest you decline their "stock picking" expertise and merely buy a low-cost index fund. However, years of research suggests active managers do no better, and often do much worse, than the "market" in general. In addition, the concept was never merely to "buy and hold." It was (and is) "buy, hold, and re-balance." By re-balancing stock and bond funds* periodically (say, yearly) or when a "band" is triggered (many use +/- 5% deviation from the target asset allocation), you can achieve the same (or better) results as active managers, while avoiding the drag on performance created by their outlandish fees. For those interested, go over to Bogleheads and read the Wiki tutorials.

*I include funds held in CDs as part of my "bond funds" for re-allocation purposes.

 

Just my $.02
11
BozoBozo135 posts since
Feb 14, 2011
Rep Points: 917
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