Buy and hold stock investors face difficult and challenging times. The U.S. economy is stuck in a rut and will need several years of hard work and good luck to begin moving again.
The stock market, while volatile in the short term, is still recovering from the financial disaster in 2007-08. The odds are not good for any sustained stock market advance.
Which raises the question as to whether the buy and hold stock strategy is dead (I know, some believe it died years ago). However, thanks to retirement plans such as 401(k)s, IRAs and so on, most Americans who own stock are by definition buy and hold stock investors.
These programs reward a consistent investment plan that puts fixed amounts into the accounts on a regular basis (monthly, for example). History is clear that this approach has worked in the past, but will it still work today?
Of course, we can't look our 10 plus years into the future for results. Many stock investors are willing to accept the historical effectiveness of a buy and hold strategy (assuming a broadly diversified portfolio and the other usual qualifications).
Where the buy and hold strategy has failed usually involves investors not understanding the short-term volatility of the stock market. This means they hold on to stocks too long when the time approaches that the investor will need to pull money out of the market (during retirement, for example).
Despite what you may read elsewhere, the majority of individual investors do not make good stock traders - meaning they lack the time, resources or emotional commitment to learning how to buy and sell stocks to take advantage of small price changes.
What most stock investors can and should do is understand that as they need a strategy for exiting most of their stock positions years before they need the cash, For example, if you want to retire at age 65, you should consider moving out of stocks and into more stable assets, such as bonds, at least by age 55.
This doesn't mean blindly selling everything at once, but a planned exit that takes into account the nature of the stock (high tech, utility and so on) and its future prospects along with whether you have a gain or not.
The goal is to shift your assets out of the volatile stock market (in the short term) and into more stable investments. At this point, you should be more concerned about preserving capital and less about future growth.
You'll want to leave a small percentage of your assets in the stock market during retirement, but most of your portfolio should be in fixed income. This will help you avoid what happened in 2007-08, when the market lost 50% of its value right before you retire.
