The chart below brings to mind a favorite quote;
“Buy and Hold investing is the worst kind – except when you compare it to all the others."
In the last decade only there were 33 events that could have triggered an emotional sale. December of 2018 and the Coronavirus sell off being the most obvious. But if you stayed put, the S&P 500 would be up 458% as of the end of September.
We never make predictions, but I am going to make an exception and say that volatility will be a major factor in equity investing going forward. Anything you do to dampen volatility will also reduce your returns. As the chart indicates, selling out at one or more of these events would have most certainly had a negative impact on your returns.
That’s why the key to dealing with volatility has nothing to do with individual securities. It has everything to do with an approach to total portfolio construction to deliver balance between offense and defense. A portfolio that prioritizes safety & certainty alongside the pursuit of gain-seeking. This approach enables investors to emotionally absorb the wild short-term price movements, which is a critical component of maximizing long-term returns, and riding out the inevitable downturns without being a forced seller.
Remember, money is a lot like soap, the more you play with it the less you have.