How To Lose A Decade Of Life By "Buying And Holding"

The conventional wisdom tells us that "the market always goes up in the long run," and that simply investing in stocks and bonds will secure your future.

I’m not sure retirees in the 1970s or 2000s who were counting on appreciation to survive would agree with this “principle”...

Take the retirees in the 1970s and early 2000s. These individuals, who were relying on steady market appreciation to fund their golden years, likely felt misled by this principle. Let's take a deeper look.

Historical Market Pitfalls

• 1970s Stagnation: In the 1970s, after adjusting for inflation, the U.S. stock market (S&P 500) delivered almost no real returns for investors. While the nominal value of stocks might have appeared stable, rising inflation eroded much of the gains, leaving portfolios essentially stagnant for the entire decade.
• The "Lost Decade" (2000–2010): The early 2000s saw a repeat of this scenario. During this period, known as the "Lost Decade," the S&P 500 delivered zero gains. After the dot-com bubble burst, it took investors the better part of ten years just to break even.

Imagine spending decades building a portfolio on the assumption that "the market always goes up," only to find yourself waiting 10+ years just to recover your initial investment. Yes, the market eventually recovered, but those years of waiting can cause significant financial stress and opportunity costs.

“Buy everything and hold it forever,” people love to quote Jack Bogle for why they only need stocks and bonds.?

But they skip the part where Bogle himself said “this assumes you’ve gotten the fundamentals right in the first place” where you can afford an almost indefinite amount of time in the market.?

For the average investor, affording an indefinite period in the market is far from realistic. Without a massive net worth to withstand years or even decades of market downturns, simply holding onto assets could be devastating.

What happens when you need that capital for life's unexpected events—like a child's college tuition or a major medical expense?

Relying solely on historical returns to dictate your financial future can be a dangerous experiment when your livelihood and long-term goals are at stake.

Key Takeaways:

• Historical Examples: The U.S. stock market in the 1970s and the dot-com bust in the 2000s both delivered zero gains for extended periods, challenging the idea that "the market always goes up" in the short to medium term.
• Buy and Hold Risks: "Buy and hold" strategies assume an investor has enough time and financial stability to ride out significant downturns. This approach may not be suitable for everyone.
• Opportunity Costs: Waiting for a market recovery during a downturn can prevent you from taking advantage of other opportunities or meeting financial needs.

Sources:

Federal Reserve Economic Data (FRED)

Wall Street Journal analysis of S&P 500 performance (2010)

The Journal of Portfolio Management (2020)