Despite the growing argument that buy-and-hold investing and diversification no longer make sense, Burton Malkiel, Princeton economics professor and author of “A Random Walk Down Wall Street,” writes in a Wall Street Journal op-ed Thursday that is absolutely not true.
Because no one can time the market consistently, the best thing for investors to do is to buy and hold, Malkiel says. “The timeless investment maxims of the past remain valid. Indeed, their benefits may be even greater today than ever before,” he says.
Buy-and-hold investors in the broad stock market would have earned 8% between 1995 and 2009, but if they had timed the market and missed the 30 best days in that period, their return would have been negative, he argues.
Malkiel says investors are best served by consistently investing through dollar-cost-averaging and rebalancing a well-diversified portfolio once a year.
“Low-cost passive index fund investing remains an excellent strategy for at least the core of every portfolio. Even if markets may not always be efficiently priced, index funds must return above-average returns after costs,” Malkiel says. “The evidence is clear. Low-cost index funds regularly outperform two-thirds of actively managed funds. If you ignore the pundits who say that old maxims don’t work and you follow time-tested techniques, you are likely to do just fine, even during the toughest of times.”