Historically, Buy and Hold is a pretty tough benchmark to beat. Very few public returns have beaten buy and hold over 40 years (compounded).
Volatility & Correlation.
- Thread starter GarrettKimmel
- Start date
Primarily that is because of the "monetary expansion and $USD debasement" over the last 40 years. IOW, the last 40 years only measures the "upside of the nominal phase"... the downside has yet to be experienced.
Even so, "beating B&H by miles and miles"... even when comparing to the "upside only"... has been a piece of cake for those with proper knowledge and discipline.
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Two reasons:
1. Volatility reduces the effectiveness of compounding
2. You can never be 100% sure that you won't need to liquidate some of your long-term holdings for immediate cash requirements. There is a good chance you will be doing this at the absolute worst times in the markets.
1. Volatility reduces the effectiveness of compounding
2. You can never be 100% sure that you won't need to liquidate some of your long-term holdings for immediate cash requirements. There is a good chance you will be doing this at the absolute worst times in the markets.
Most public funds have not done it; forget about accounting for the tax efficiencies of buy and hold vs active management.
We've had many drawdowns in the last 90 years (one that took the market down 80%+). And buy and hold over the long run has still been hard to beat.
IBM Shares Have Gained 3,400,000%
http://www.bloomberg.com/news/artic...have-gained-3-400-000-but-are-they-a-buy-now-
http://www.bloomberg.com/news/artic...have-gained-3-400-000-but-are-they-a-buy-now-
To be safe, generally you shouldn't pay attention to volatility and correlation if you have a 40+ year investment horizon. -- that's a pretty long safe horizon to weather all storms
But make sure it's in a broad-based market ETF...like the S&P 500 -- Not one or a couple or a handful of individual stocks.
I kind of personally like to think of all Investors...as traders, but with no appetite for risk/volatility/greed/returns
...because even though some people are Investors...you know they are watching the markets daily like a hawk...with their pulse or heartbeat reacting accordingly.
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Diversification and expected drawdown.
I would say that life expectancy is a more important factor to consider.
Volatility will impact your expected wealth at retirement in 40 years. Suppose expected returns each year are 6% per annum. Does it matter if the volatility is 6% or 12%? Of course it does. Expected wealth will be lower if vol is higher.
Moreover, most people care about volatility over time and not just the distribution of the portfolio value in 40 years.
Moreover, most people care about volatility over time and not just the distribution of the portfolio value in 40 years.