Why Buy and Hold is Costing You Money

By Dale Gillham | Published 25 November 2019

The usual mantra in the financial services industry is to be patient and invest over 10 years or more to achieve a good return. But is this really the case or has the financial industry got it wrong?

I guess that depends on what you believe constitutes a good return. According to research, the majority of investors believe a return of around 8 percent is good.

If you had simply bought and held the stocks on the Dow Jones Index over the 10 year period ending December 2016, your return would have equated to 7.53 percent including dividends. And if you had adopted a buy and hold strategy over the 20 year period ending December 2017, your annual compounded return would have been approximately 8.34 percent, including dividends.

Based on these figures, you could surmise that a buy and hold strategy delivers good returns.

That said, I would argue that our expectations regarding the returns that are achievable in the stock market have been shaped by industry, so that we don’t expect more than they can deliver. Let me explain.

If we look a little deeper, we know that over the 20 year period to December 2017, the Dow Jones experienced three bull runs (a rising market), two of which were the largest bull runs in history, especially the current bull run which commenced in March 2009 and is still yet to finish.

In my latest award winning book “Accelerate Your Wealth”, I demonstrate how being a more active investor using some simple yet powerful rules trading the top stocks on the Dow Jones over 10 years to December 2016 you could have achieved capital growth and income of 450.36 percent or an annual compounded rate of return of 18.59 percent.

What’s even better is that the return was achieved by lowering your risk, as I show you how to avoid the falling markets and to only invest when the markets are rising.

So what’s unfolding in the markets right now?

Key findings in the IHS Markit report indicates that business growth increased in November, as the following indexes had improved.

  • Flash U.S. Composite Output Index achieved a 4-month high.
  • Flash U.S. Services Business Activity achieved a 4-month high
  • Flash U.S. Manufacturing PMI achieved a 7-month high
  • Flash U.S. Manufacturing Output Index achieved a 10-month high

Looking at the retail sector, as we head into Christmas, , Target was up 12 percent last week after reporting 10 percent growth in apparel earnings, while around 40 percent of other retailers were also up. In contrast, Home Depot and Macy’s were both down 8 percent, while Kohl’s was down 20.45 percent after announcing poor reports.

Given this mixed bag, we will be looking towards the November and December retail figures for a sign that the economy is moving in the right direction. While the signs are positive, it is slow at present.   

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