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Are there better alternatives to the buy and hold method?

Personal Finance & Money Asked on June 5, 2021

When purchasing securities of any sort, there always seems to be two pieces of advice – “buy low and sell high”, and “buy and hold.” Generally speaking, buy low sell high is incredibly difficult for the vast majority of people. Most will get far better results by using dollar-cost averaging, along with holding their investments for long periods of time. But I am curious, are there relatively safe methods that will beat out the buy and hold method when it comes to purchasing securities?

2 Answers

Firstly, we must define what "better" means here. For most investors better in terms of investing strategy means a high return to risk ratio / tradeoff / relationship.

The main reason that buy and hold is overperforming most other strategies is that most securities naturally increase in the long run due to several reasons (technical developments, higher productivity, more free trade, inflation etc.). This effect does not only increase return but also diminishes the risk in the long run, so that the strategy has a great risk/return relationship. A broad diversification will help to reduce risk furthermore.

Answered by JulianG on June 5, 2021

Rhetorical question: If there was a relatively safer investment alternative that beats the buy and hold method then why would anyone be doing buy and hold? Did the masses drink the Kool-Aid?

In effect, you answered your own question. "Buy low and sell high is incredibly difficult for the vast majority of people."

Now if your question was: "It is possible to make a reasonable but lower return with less risk?" then yes, that's possible. You'd be effectively playing in the middle, never getting the maximum return each year and never taking the full beating of a 35% drop like we experienced in March or the 50% drops in 2000 and 2008. But that too is "incredibly difficult for the vast majority of people."

Answered by Bob Baerker on June 5, 2021

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