Investors have heard for years that “time in the market” is much more critical to investment success than “timing the market.”

Yet, according to one analysis, only 55% of retail mutual fund investors have an average holding period of more than two years. It’s even worse for individual stocks, where the average holding period is just 5.5 months.^{1, 2}

The principal reason that “time in the market” is more important than “timing the market” is that few investors (even the best) can predict the turning points in the stock market with any precision or on a sustained basis.

Moreover, most investors simply don’t have the constitution to buy stocks at the very best time to buy them, (i.e., when things are at their bleakest, such as the 2008 credit crisis or the 2020 pandemic).

Secrets of the Buy-and-Hold Investor

St. Augustine is famously quoted praying, “Lord, give me chastity, but not yet!” This prayer reflected Augustine of Hippo’s inner turmoil between the desire to do what was right and the demanding struggle to do so.

As investors, we experience the same struggle between doing what we know is right (buy-and-hold) and succumbing to baser emotions, such as fear and greed, that can lead to bad investment behaviors.

The ingredients of the buy-and-hold strategy are as effective as they are simple:

• Have a plan. The sense of loss and danger is never more acute than when operating without an objective and a map to get you there.
• Stay diversified. Your portfolio should remain diversified at all times to manage risk while availing yourself of the market’s potential.
• Understand your investments. Incomplete understanding of what you’re invested in may lead to ill-considered selling during difficult patches. Know your investments’ risks and what they are designed to accomplish in your portfolio.
• Work with an experienced financial professional. Sometimes the greatest value of having a financial professional is not what he or she gets you to do, but what harm he or she keeps you from doing to yourself.
• Don’t fixate on the market. Daily or monthly performance is noise to the long-term investor. Turn off the financial channels. Keep the market in perspective. Sometimes markets are ugly and painful, but bear markets eventually pass.
• Maintain cash reserves and non-market investments. Holding money markets funds, a fixed annuity or CD act as a financial cushion against short-term market volatility, providing you the emotional strength to avoid making bad decisions during difficult market stretches.

Remember, portfolios are like a bar of soap … the more you handle them, the smaller they get.

Sources:

1. https://www.business-standard.com/article/markets/long-term-investing-gaining-traction-among-mutual-fund-investors-121052300781_1.html
2. https://www.visualcapitalist.com/the-decline-of-long-term-investing/

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