Buy and hold

The stock market has, in most Western markets, risen on average 6-10%. Why not simply buy stocks and “forget about it”?

There is a reason why women are doing better in the stock market than men (evidence indicates that): they buy mutual funds, invest regularly, and kind of forget about it.

They are not trying to be smart.

The more decisions you make, the closer you follow the market, the more likely you are to make behavioral mistakes and suffer from your biases.

Let’s look at some pros and cons of buy and hold:

Pros:

It doesn’t require much time. You save and invest when you have money, and that’s it. For this to work you need to invest in a broad market mutual fund that tracks the main indices, or a group of mutual funds (or ETFs).

As long as we have a capital market, you should seek comfort in the fact that you are taking part in the wealth creation of society. Just look at this graph from Holberg.no :

You delay taxation to the time of realization. As long as unrealized gains are not taxed, you can let it compound nicely.

Cons:

It takes time to let it compound. As you learned in the early lessons of this course, the first years require patience as it’s hard to see the fruits of your savings. But after 10 years you can see that the “interest of the interest” starts growing.

Another minus is that you have to stomach nasty market corrections. In 2008/09 the market tumbled 55% at the most and most thought the financial markets would go to zero. It takes conviction to weather that.

 

At the end of the day, buy and hold is a simple way of letting your capital and wealth grow. There are no sure things in the financial markets, but the odds of getting a decent return over a few decades are very good.