"Buy-and-Hold" Has Historically Been a Winning Investment Strategy

I don’t believe it’s an exaggeration to say that 2019 exceeded expectations for a great number of investors. The S&P 500 Index increased more than 31 percent, putting last year among the very best going all the way back to 1928. Since then, the market has ended in positive territory 73 percent of the time, with a gain “equal to or in excess of 30 percent (like 2019) occurring 19 out of 92 years, or 20 percent of the time,” according to Lauren Sanfilippo, vice president and market strategy analyst at Bank of America Merrill Lynch.

Negative years, by comparison, occurred 27 percent of the time. And even then, years in which stocks fell no more than 10 percent were most frequent, happening 12 out of 25 negative years, or 48 percent of the time.

SP 500 Total Annual Returns from 1928 to 2019
click to enlarge

After such a stellar year, is it time for investors to de-risk, or should they continue to hold their positions?

Stocks Have Been More Likely to End the Year in the Black Than the Red

Looking at the chart above tells me a couple of things in particular. Number one, stocks have historically been much more likely to end the year with a gain than a loss. The implication, then, is that a buy-and-hold strategy has worked out for a lot of investors in general—even those who still may have memories of the tech bubble 20 years ago and financial crisis more than 10 years ago.

And number two, the naysayers and “perma-bears”—those who’ve repeatedly predicted an end to the economic expansion, now in its 10th year—have not only been wrong time and again but may have also discouraged some investors from participating in this historic bull market.

Think back just 12 months ago. At the beginning of 2019, a number of economists and so-called experts were sounding the alarm bell over the inverted yield curve, not to mention U.S.-China trade tensions and slowing global economic growth. And yet look what happened. The market went on to hit as many as 35 record highs from start to finish, ending the year up nearly 300 percent from December 2009.

My point is not that you should put blinders on and ignore the risks completely. But neither should you take action every time Chicken Little warns you the sky’s about to come crashing down. Investors who continued to participate in 2019, despite the warnings, were rewarded.