"Buy and hold" is the gut-wrenching investment play right now

[UNITED STATES] In a market marked by volatility and uncertainty, the traditional "buy and hold" investment strategy is being tested like never before. While this approach has historically been a cornerstone of long-term wealth accumulation, recent events—including trade tensions, fluctuating interest rates, and geopolitical instability—are prompting investors to reconsider its efficacy in today's economic climate. This article delves into the current challenges facing buy-and-hold investors and explores whether this strategy remains viable in 2025.

The Resilience of Buy-and-Hold

The buy-and-hold strategy advocates for purchasing securities and holding them for an extended period, regardless of market fluctuations. Proponents argue that this approach allows investors to benefit from the long-term growth of the market, minimizing the impact of short-term volatility. Financial advisors often liken it to driving at a consistent speed on the highway—steady and reliable over time.

Historical data supports this philosophy. The S&P 500 has delivered an average annual return of approximately 10% over the past century. By staying invested, even during downturns, investors have historically been rewarded as markets rebound. For instance, during the COVID-19 market crash in 2020, those who maintained their positions saw significant gains as the market recovered.

Current Market Challenges

Despite its historical success, the buy-and-hold strategy faces significant challenges in the current market environment. Veteran investor Bill Smead recently described the present market as "perhaps the most dangerous" of his 45-year career, citing high valuations and a momentum-driven rally fueled by investor fear of missing out (FOMO).

Additionally, geopolitical tensions, such as trade wars and conflicts in regions like the Middle East, are contributing to market volatility. These factors introduce uncertainties that can affect the stability of long-term investments.

Investor Responses: Caution and Rebalancing

In light of these challenges, some investors are reassessing their portfolios. Retail investors Angelo Sibilio and Matt White, for example, shifted significant portions of their portfolios into cash and U.S. Treasurys in response to market volatility. Sibilio, a quantitative analyst, moved 50% of his investments to more secure assets following a sharp 12% drop in the S&P 500, citing the need for peace of mind rather than return maximization.

Financial advisors suggest that while the buy-and-hold strategy has its merits, it may not be suitable for all investors, especially those with shorter investment horizons or lower risk tolerance. Rebalancing portfolios to align with current market conditions and individual financial goals is recommended.

The Role of Dollar-Cost Averaging

One strategy that can complement buy-and-hold is dollar-cost averaging (DCA). DCA involves investing a fixed amount of money at regular intervals, regardless of the asset's price. This approach can mitigate the impact of market volatility by spreading out the investment over time. It also removes the emotional aspect of trying to time the market, which can lead to suboptimal investment decisions.

While the buy-and-hold strategy has been a reliable approach for long-term investors, the current market landscape requires a more nuanced application. Investors should consider their individual financial goals, risk tolerance, and investment horizon when deciding whether to maintain or adjust their portfolios. Incorporating strategies like dollar-cost averaging and staying informed about market conditions can help navigate the complexities of today's investment environment.