Passively investing in the stock market has its advantages – it takes very little effort, no homework required, in fact, no knowledge is required, just pick your favorite S&P500 ETF (SPY, IVV,…) invest all your money in the one ETF and track the market. This strategy is known as “buy and hold”, the question is: Does buy and hold work? Buy and hold is Warren Buffett’s way of investing, a system that made billions for this very intelligent investor. But, does it work for us mortals? When testing passive investment strategies like “buy and hold” on paper, it appears like a sound method for following an index benefiting from the fact that markets are biased to the upside. In reality, though, things are not that simple, it’s the “hold” part that is difficult. Imaging investing 1,000$ per week in SPY ETF during 2017 until now, during 2017 the holding part was easy, 2017 was low vol. year, at the end of 2017 you have about 15K$ net worth. Then came 2018 – 2020 which are high vol. years with a drawdown of 20% and 35%, making it is mentally very hard to continue the 1000$ deposit into a portfolio that has seen such drawdown on a larger portfolio, 10% loss of a small portfolio is manageable but not on a larger portfolio. This is why the system works on paper but is very different in reality, passive income investment works when it’s truly passive – completely hands-off. Trade Smartly.
Yes. You can do it mechanically through judicious use of leverage, adding more on set % declines, etc. This is likely a far better approach than spending your whole life staring at screens to marginally outperform or (more likely) underperform the index. Much like getting rich, losing weight, etc. the principles and math are very simple and widely available. But most people won't be able to actually execute.
When the market drops 20 to 35%, I gladly continue with my monthly contributions because I am buying in at lower prices. Most people who invest in retirement accounts follow this strategy and they likely outperform most of the traders on this site. That being said, I also have an account for short term trading which should balance out massive drawdowns in my retirement accounts.
For the current market, are you still putting in all your capital? For someone just started with big capital, what would be the best strategy?
https://www.elitetrader.com/et/threads/tqqq-vs-qqq-22-years-simulation.356593/ I have a strategy that holds 50% in gold and 50% in TQQQ. So in a bear market gold would go up big. And the rule is when TQQQ drop 90%, move the profit in gold into TQQQ. I research gold ETF and could not find any gold ETF that was earlier than Nov, 2004. So I would just start the strategy from Nov,2004. Since 2000 bear market was a rare event and is not likely to happen again in the future, while 2008 bear market was more like a typical bear market. So GLD starts in Nov,2004 at 45, while TQQQ at about 400. In early 2008, TQQQ drop to 40( the lowest was about 16) while GOLD was 90. If I move GLD profit into TQQQ, today I would make 159 times profit. If I move all GLD into TQQQ, I would make 318 times profit. If 2008 bear market did not happen and TQQQ never drop below 40, I would make 20 times profit. If I did not hold any gold, but all TQQQ, I would make 31 times profit. For the same period, QQQ made 10 times profit. SPX made 340% profit. In case a 2000 bear market happens, gold would go much higher, and TQQQ would go much lower, so TQQQ+GOLD strategy would make much more profit than 158 times. All these scenario beat simply holding SPX or QQQ. The conclusion show that holding TQQQ + GOLD significantly outpreform holding SPX or QQQ.
My retirement accounts are fully invested in stocks. If I had a lump sum to invest, I would likely scale in over time given how "high" the market is now.
The problem with approach might be that the larger the portfolio becomes, the larger the drawdowns and the longer the recovery time
This probably was painful in the past month as both gold and QQQ took a dive, but I guess it's profitable in the long run
This question should not be asked. A competent stock trader should easily, get more than the paltry return of the S & P 500. It is the lazy way to try and make monies without doing anything. Most fund managers have a hard time beating the S & P 500 because they have to move large sums of monies. Most traders do not have that problem. We can get in and out of positions, easily and multiple times if we choose to.