Is the "buy and hold" theory of owning mutual funds for retirement savings now defunct?
The "buy and hold" folks have for many years said that the stock market averages a 7% return annually, and to keep investing in a diversified portfolio of mutual funds representing stocks and some bonds. But many investors following this strategy lost 30 - 45% of their retirement portfolio value in the last six months as the recession pummeled both stock and bond values. Should US investors be looking somewhere other than mutual funds to grow their retirement savings?
Public Comments
- I disagree with your theory that bond values were "pummeled" in the last 6 months. For instance, take the Vanguard Total Bond Market Index Fund, a fund that invests broadly trying to recreate the Barclays US Aggregate Bond Index. It averaged 3.96% over the last 6 months, 5.05% over the last year. The Index itself average 5.24% over the last year. This is not a specialized index, its a broad index of most bonds. (See link 1) The basic concept remains. You should buy and hold ~100% diversified stocks in your 20's and slowly shift into bonds until by retirement you are ~50-70% bonds. When you are young you have plenty of time to recover from a crash. The older person is cushioned by their bonds. There are funds that automatically switch over into bonds as you grow older (see link 2). Most alternate investments are usually of lower return or higher volatility. One exception is real estate. Buying a home to live in is usually a good investment. However, this alternate investment was also hit during the recent recession.
