Big Payoff for Indexing with a Buy-and-Hold Strategy

Calendar 2013I’m a fan of investing in low cost index mutual funds with a buy-and-hold strategy, and not chasing hot stocks or trying to time the stock market. And for those who follow this approach, 2013 paid off handsomely. The Dow Jones Industrial Average gained 29% (including dividends), the S&P 500 index 32%, and about 37% for the Russell 2000 index. According to the Wall Street Journal, “Many Hedge Funds were left in the dust”* along with investors who have a wide spread of assets including commodities.

I’m not gloating, and I realize how hard it is to simply invest in a total stock market index fund, and just hold on through the temporary ups and downs. We want to do something to help our investments, wonder if and when we should, and we’re encouraged every day by headlines and articles to change our investments. But the simple, low-cost, diversified solution that has historically benefited investors, is the buy-and-hold strategy using large sections of the market and in particular, index funds.

A case in point is the Vanguard Total Stock Market Index Fund (VTSMX), which has an expense ratio of just 0.17% (no sales loads, and no 12b-1, distribution, or marketing fees) and gained 29.93%** this past year. It’s true this is just one year (and what a year), but the 10 year average for the fund is 9.31%, so 2013 is like icing on the cake.

We can wonder when to be in or out of the market, and fret over headlines and recommendations, or we can establish a low-cost, diversified portfolio and allow the historical averages to have their affects.

Instead of chasing hot stocks or trying to time the stock market, the buy-and-hold strategy has proven itself to be the friend of the individual investor time and time again…and especially in 2013.

* “Winners Of 2013: Boring Investors“, The Wall Street Journal 12/31/13
** Morningstar data

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