News sources say today is the 10-year anniversary of the start of
the financial crisis. So it’s an
opportunity to see how different forms of investing behavior served you. Did professional investment management
protect you from the huge downside in 2008 and then give you great returns in
the strong periods thereafter? If you
have done nothing but own Vanguard’s Total Market Index Fund over the last 10
years, meaning you did not time the market and did not panic and sell when the
market was falling, you earned an annualized 7.94% return on your money. Not bad!
But what if you hired a pro such as a hedge fund to manage this period
of turmoil; someone who should know when to stay out of the market and when to
get back in? Despite their very high
fees you’d surely do better, right? Well,
results don’t paint the picture you might expect. An index of Hedge Funds over the last 10
years has returned less than 4% annually and many of the most-respected names
in hedge funds contributed to the mediocre performance. After compounding, that’s a huge hit you took
for trying to time the market. Buy and Hold wins by a mile. You cannot predict that buy-and-hold will
always win but for those who believe that you must pay someone big fees to
avoid the bad markets, perhaps it’s time to rethink your strategy.
Larry Pike, CFA
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