Does Buy and Hold Still Work in Bear Markets?

There has been a lot of talk in the business media lately about how buy and hold has “failed” in the last decade.

The talking heads have been giving stats like, “if you had bought the S&P 500 Index in 1998, you would have made no money in the last 10 years.”

That’s apparently based on investing $1,000 in the index and never putting any more money into it.

Without a doubt, bear markets are scary beasts. If you had invested in 1929 in the Dow, you would not have “broke even” until 1952!

But one thing is usually forgotten by the talking heads: dividends. During that time period, your dividends would be re-investing. From 1929 to 1952, you would have had a 6% annual return if you had reinvested your dividends during that time period.

In recent years, dividends paid by the S&P 500 have been paltry. In fact, just last year, they were under 2%. But with the market sell-off, dividend yields have jumped. They’re still not historically high, but they’re decent.

Dividends are a lifeblood for buy and hold investors.

Dollar Cost Average

Additionally, if you can continue to add to your portfolio, you’ll dollar cost average (buy at the highs AND the lows and this will help insulate you from the big drops.)

How many people put money in in 1998 and never invested another dime? Perhaps those already in retirement. But everyone still working should have continued to sock it away.

So- the “return” since 1998 isn’t really nothing- as the talking heads make it out to be. It was much more.

Buy and hold makes even more sense in bear markets. You’re getting the stock much, much cheaper and have great upside potential.

Why is it that stocks are the only things no one wants to buy when they go on sale?

Don’t think about 1998. Think about 2018. Where do you think stocks and the economy will be then? Where do you want to invest to take advantage of the comeback?

Go for it. Buy and hold. The “rainy day” is already behind us. Plan for the sunshine.