"In investing, it is better to sell a year too early, than a day too late".
If you can time the market correctly, that is obviously the optimal strategy.
[0] https://www.bogleheads.org/blog/bogleheads-principles-never-...
[1] https://www.schwab.com/resource-center/insights/content/does...
> Rather than putting it immediately into the market, he waited and invested after month-end January 1993—that year's monthly low point for the S&P 500. At the beginning of 1994, Peter received another $2,000. He waited and invested the money after March 1994, the monthly low point for the market for that year. He continued to time his investments perfectly every year through 2012.
That's hardly "perfectly timing the market" in the usual sense. I'd consider "perfectly timing" to be sell at every peak and buy at every trough, so you're always holding stocks when they're gaining versus the dollar and holding dollars when stocks are losing versus the dollar.
It's impractical, but it's a much better result -- the theoretical limit to how much you could have made with perfect knowledge of all the pricing ahead of time.
That analysis, by contrast, only looks at what happens if you have a little perfect information -- and the answer is "not much".
* people falsely believe that due to having learned about the myth of the buy&hold investor, they are now 100% in control of their psychology and will not succumb to 'this time is different' panic selling when things get serious. their own psychology will be the biggest surprise to young investors, who have entered the market after 2008 and haven't experienced even a single correction.
* people aren't properly accounting for being forced to sell at a loss due to unexpected expenses, which are dramatically more likely to occur during a downturn, i.e. the probability of losing their job during a recession is >> than any other time. same thing with divorces, probably. maybe even illness. distant relatives asking for money. etc etc
* people aren't entirely wrong to panic sell when mass hysteria breaks out. most of the research is based on the US stock market, which is exceptionally long-lived and uninterrupted. if you asked tsarist bureaucrats retiring in France how well their portfolios are doing, they would sing you a different song.
* [personal] if I had to put a monetary value on the psychological relief I feel since reducing my exposure to equities by half, it is very well worth whatever grandiose compounding fortune I am forgoing because of it, not to mention that should I be lucky with the timing, that may not even be the case. as a rule of thumb: when you repeatedly find yourself checking financial news, you are invested too much (and are now longer a 'passive investor')
the only good thing to be said about the 'buy & hold' meme is that it drives people away from the even worse active management industry, but that doesn't make it unconditionally good advice.
No. Decades of research has shown that it's better to sell early and get back in late. It has shown that selling late and buying back in early is worse than riding out. It has shown that selling and never buying back in is worse than riding out.
> Decades of research by now has shown that buy-and-hold beats timing the market every time.
No. It has shown that people are bad at timing the market. Nobody can buy at the lows and sell at the highs. That's why you sell early and buy back in late.
For most people, they should just buy dated mutual funds and not even think about the markets.
The simplest thing to do is to start liquidating your stock positions when the fed starts ramping up interest rates ( maybe a few quarters of consistent interest rate hikes ) and then start buying back in slowly when the FED starts lowering interest rates.
That will give you far better returns than buying and holding.
Having lots of dry powder in a downturn is a very good place to be for a professional investor. That said, most folks are not professional investors, so buy and hold is relatively simple strategy that performs fairly well for non-professionals.