Why 'Buy and Hold' Strategy No Longer Works?
08/19/2011 2 comments
'Buy and Hold' or Strategic Asset Allocation(SAA) has its place, as Tactical Asset Allocation(TAA). Any strategy has its strength and weakness and will not always work (or to be precise, will underperform in a period of time).
Financial media will report that strategy works and that does not at any point of the history. However, remember 'strategy is not strategy if you keep changing it'. 'Buy and Hold' worked well in certain period (such as in 2009-2010) but Tactical took over right now. What is important is to stay the course that is within your risk tolerance or that does not wreck your (financial) ship. A sound strategy points to the same final destination (or in investing, positive expected returns in a long period of time).
See our newsletters on this topic:
SmartMoney's Jonathan Dahl explains why the traditional recommendation of a 'buy and hold' strategy for individual investors no longer works in the current market.
See how our Simple Is Better (SIB) six core asset ETFs model portfolios have performed year to date in the current treacherous water. These two portfolios are constructed out of only 6 index ETFs:
- VTI (Vanguard Total Stock Market)
- VEU (Vanguard International Stocks)
- VWO (Vanguard Emerging Market Stocks)
- VNQ (Vanguard REITs)
- DBC (Powershares DB Commodities)
- BND (Vangaurd Total Bond Market).
Portfolio Performance Comparison (as of 8/18/2011)
Portfolio/Fund Name | 2011 YTD | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
---|---|---|---|---|---|---|---|
VFINX | -9% | 7% | 51% | -2% | -2% | -1% | -2% |
Six Core Asset ETFs Tactical Asset Allocation Moderate | -0.13% | 9% | 89% | 10% | 80% | 13% | 94% |
VBINX | -3.74% | 7% | 203% | 3% | 32% | 3% | 28% |
Six Core Asset ETFs Strategic Asset Allocation Moderate | -1.58% | 8% | 84% | 4% | 17% | 6% | 31% |
More detailed here.
Symbols: SPX, COMP, VTI, VEU, VWO, VNQ, DBC, BND, SPY, EEM, Asset Allocation
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