Over the long run, that is always true. Just hold and grow, until you are within 10 years of retiring. Then move to a more conservative position.
No, it isn't. It's quite possible to lose money with a buy-and-hold strategy if you get unlucky, particularly if you aren't diversified. It's probably the most reliable way of investing, but you can still lose money. Stocks are not guaranteed to go up over all possible 50-year intervals.
Monte carlo simulations of S&P500 investments illustrate this:
https://seekingalpha.com/article/4109617-buy-hold-just-works...
Everyone says there's no way the market can underperform on a longer run and you can't time it so don't bother. When someone brings back 2008 they downvote it to death and reply that it went back up so it will be all fine. When the market goes south just keep buying.
Japan would like to have a word with you.
Indeed. But more prosaically, many of these HODL types are discounting how much they'll actually freak out at a market correction. They've never seen a 30% drop, or lived through a five-year correction (let alone an extreme situation, like Japan). Even if you have the stomach to handle the drop, things happen on a five-year horizon that people don't consider: extended unemployment (which tends to happen during recessions), children, houses, etc.
I made that comment thinking it would be a completely uncontroversial statement of fact. It's amazing to me that I'm getting downvoted, as if I've expressed an opinion of some kind.
Btw, here's a talk I found interesting regarding growth and the future of the economy: https://www.youtube.com/watch?v=KKLDevYyE9I&index=13&t=0s&li...
One part I liked regarding the Madoff scandal:
Obviously, you were like how could these people be so stupid to give this person all this money? Didn't they read the details? ... But one of the reasons it happened, psychologically, was because people thought 8-10% with 0 risk was perfectly normal. That's why nobody asked any questions.
EDIT
And regarding my Reddit rant, also scared me that many people don't pay off their mortgage because they get a better return from the stock market, something I find quite wrong unless you're living in a hyper-inflation economy (which is not the case in the developed world)
For any investor, there is a point in the mortgage interest rate vs risk-adjusted returns space at which investing is better. That point may differ, of course.
1. Usually a certain amount of equity in the house is protected by state law (varies from state to state). So if someone sues you and/or you go bankrupt, no one can touch your principal residence provided your equity in the home is below the state's threshold. That is assuming you stayed current on your repayments and the bank is still good with lending to you.
2. No recourse loans. If you pay off more earlier, you are just opening yourself up to further risk. I'd much rather lose a bit on super low interest rates (and maybe a little in lender's insurance, too), than lose out if the housing market crashes.
> For any investor, there is a point in the mortgage interest rate vs risk-adjusted returns space at which investing is better. That point may differ, of course.
I agree there always is a point, what I think is that the risk-adjusted return should be much bigger to be worth taking. The spread between the mortgage rate and the stock market return usually is not that big.
There will always be missed investing opportunities but leveraging the house you live in to squeeze an extra 1-2 percentage point at the risk of going bust doesn't look optimal to me.
(You don't need to account for inflation in that return calculation, since the mortgage rate is also affected by inflation.)
If you're me -- 42, great job security, relatively small mortgage relative to income, and in a high tax bracket that's unlikely to change soon -- it's a no-brainer: Take the risk and go for higher long-term expected yield. A recession just means I keep doing what I planned to do anyway - working and saving more money for retirement.
If you're 60, planning on retiring in 5 years (and so about to drop into a lower top marginal tax rate), and in an industry with uncertain job prospects ... suddenly paying off the mortgage looks more attractive from a risk minimization perspective. Or at least splitting the difference.
[1] Most people who took out or refinanced mortgages in Jun 2012 - Jun 2013, and 2016 https://fred.stlouisfed.org/graph/?g=NUh
The "or refinanced" is important, because when rates were that low, a lot of people had a strong incentive to refinance, so the actual distribution of outstanding mortgages is biased towards the lower rates. [2]
[2] This is a study from 99, but the point remains: https://www.newyorkfed.org/medialibrary/media/research/curre...
Understood, guess it's hard for me to wrap my head around this. As a european this feels unsustainable and way too good to be true.
http://awealthofcommonsense.com/2014/02/worlds-worst-market-...
An entire generation of young investors has never lived through a serious market decline, and have only been rewarded for HODL. HN skews young. There are a lot of people here who are going to find their worldview painfully challenged when the market does finally turn.
The surest sign of a market bubble in an asset is when I find myself arguing with people that yes, the price of the asset can indeed go down.
For buy and hold to fail for something like the S&P500, companies would need to fail to make money or pay dividends for 50 years. If that's going on retirement is the least of your concerns.
It is a simple, uncontroversial fact that the stock market is not guaranteed to return your money over a randomly chosen N-year period. LTBH merely minimizes the chance that you'll lose money; it doesn't eliminate the chance.
If you believe the stock market guarantees you safe returns, you are wrong. No matter what strategy you use, no matter what outlook you choose, you can lose money in the stock market. Don't invest what you can't afford to lose.
Editing as clarification for downvoters: This was a sincere question. Since no one can afford to lose their retirement savings, but few people will generate enough income to retire without making long-term investments in the stock market, I was curious what strategy timr was actually advocating. My own approach is to invest in index funds that automatically adjust their investments to be more conservative as my retirement date nears.
This is investing 101. Any financial planner will tell you the same thing. Most will tell you that you shouldn't have money in the stock market if you're going to need it within the next five years. Ten years is a better number.
Sure, keeping ~3 years income outside of the market if your actually retired is a good idea idea. But, just because the market tanked does not mean you lost money. You have the same share of the same companies if the market goes up or down.
If you need the money in five years, you should not be putting it in the stock market. If the money is truly "put to retirement" then you don't need it in five years, and you're just agreeing with me, pedantically.
The problem is that most of these HODL folks have never lived through a downturn, and will be crapping their pants when they realize that they really were secretly counting on the money being there. I've seen it happen twice now. The forums are filled with people "buying the dips" on 1% drops, but suddenly seeing a 30% short-term correction in their portfolio causes mass hysteria. The smart players have cash on hand, and are ready to buy -- precisely because they didn't "buy the dips".
Warren Buffet has $116 billion in cash on hand.
https://www.fool.com/investing/2018/03/04/warren-buffetts-11...
But sure, by your logic, he's "timing the market."
You wrote:
> Did you even read the link? [..]
Which is against HN netiquette:
"Please don't insinuate that someone hasn't read an article. "Did you even read the article? It mentions that" can be shortened to "The article mentions that."" [1]