Exactly how long should a buy-n-hold investor “hold?†For example, if you held the Dow Jones Industrials Average from 1916 through 1981, would you have made money in those 65 years? Not from inflation-adjusted price appreciation.
Here are the returns:
The above-mentioned data represent 65 years of buy-n-hold angst. Granted, naysayers might say that the dates have been “cherry-picked†to include the Great Depression. Yet the 65-year period starts nearly 13 years before the Great Depression and ends 40 years after the start of World War 1. Indeed, it is very difficult to debate the absence of inflation-adjusted price appreciation over a period as long as 65 years.
Other hold-n-hope advocates argue in favor of dollar-cost averaging throughout the downturns. This assumes that all market participants are receiving earned and/or unearned income in excess of their necessary expenses. Unfortunately, not everyone has a store of cash on the sideline to dollar-cost average back in, regardless of how long or how deep a market falls. A great many retirees have Rollover IRAs and brokerage accounts where they are not able to put any more money to work; rather, they need the money that they currently have to secure their financial future.
Still others talk about dividends. Keep in mind that the inflation adjustment in the above data is tied to the Consumer Price Index (CPI) – an index that most acknowledge severely under-represents the erosion of purchasing power. Add to this concern the reality that 2% dividends for major U.S. benchmarks hardly compensate for the volatility and emotional difficulty associated with buy-n-hold-n-hope.
One commenter actually expressed, “It’s called buy-n-hold… not buy-n-hold forever.†The implication here is twofold. First, you should not talk about periods as long as 65 years. Second, you are supposed to sell at some point. Interesting.
Let me start with a typical time horizon discussed in the media, 30 years. Is that the magic hold-n-hope period for success? I suppose this would depend on the index as well as the country. If you wanted to use the NYSE as your broad measure of U.S. stocks, you would have struggled to maintain your purchasing power in the 30-year period from 1966-1995. If you wanted to use Japan’s Nikkei 225 at a time when the country is/was the world’s second largest economy (1984-2014), your inflation-adjusted gains over 30 years are non-existent.
