The Buy-and-Hold Grandfather’s Warning
When Jack Bogle speaks, the market usually stops and listens. That’s because the grandfather of buy-and-hold investing, and the founder and chairman of mutual fund stalwart Vanguard Group, is thought of as a sagacious, steady and calming voice that sooths those who want to buy stocks, and then just simply forget about them for a decade or so.
On Monday, when Bogle was interviewed on CNBC, he raised more than a few eyebrows with his prediction that the next decade could indeed be extremely turbulent for investors. Bogle basically said that investors need to prepare for at least two declines of 25-30%, and maybe even 50%, in the coming decade.
What was even more interesting is that Bogle really didn’t think this situation was too much of a concern for investors.
Bogle almost cavalierly said that bear markets just come and go. “The market goes up, and the market goes down. It’s never failed to recover from one of those 50% declines.”
The Vanguard chief then went on to chronicle the bear markets that he’s lived through, including ones in 1973-1974, 2001, 2002, 2003, 2008-2009.
Here’s the money quote from Bogle on this issue of bear markets: “They’re kind of scary — often terrifying — but it’s typical. Why it doesn’t bother me is if you hang on through the cycle, that’s the only way to invest. Trying to guess when it’s going to go way up or way down is simply not a productive way to put your money to work.”
Well, I would like to see Bogle look into the eyes of someone who just lost 50% of his or her 401(k) value in the same year they were planning to retire. I doubt these folks would be comforted by his historical perspective.
Sure, Bogle might be able to weather a 50% downturn and still be well off, but most normal investors simply cannot do that. Most of us cannot afford to lose that kind of wealth, and that’s the reason why I think that buy and hold is a bad philosophy.
Hey, you don’t have to try and time the market exactly when investing for the long term. You do, however, need to be able to sidestep bear markets when they occur. If you don’t do so, then the gains you made during bull markets could be wiped clean precisely at the worst possible time in your investing life.
Jim Woods is a 30-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor.
His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. Read more about Jim Woods.
