The Ultimate Buy and Hold Strategy is an extremely effective way to “beat the market” if you regard the S&P 500 as “the market.” Paul A. Merriman
For more than half a century, investors who held equal parts of the S&P 500 index funds and nine other equity asset classes could more than double their long-term returns — with surprisingly little additional risk, explains Paul A. Merriman, founder of investment-advisory firm Merriman Wealth Management..
Much of the additional investment return comes from adding value, small-cap and international stocks to the S&P 500 index portfolio. By itself, the S&P 500 index is a good investment. Since 1928, the worst 40-year period for the S&P 500 index was a compound annual growth rate of 8.9%; the best was 12.5%.
For the past 52 calendar years, from 1970 through 2021, the S&P 500 index has compounded at 11%. An initial investment of $100,000 in 1970 would have grown to $23.1 million by the end of 2021.
The Ultimate Buy and Hold Strategy is an extremely effective way to “beat the market” if you regard the S&P 500 index as “the market.” Instead of investing all your capital into a S&P 500 index fund, you diversify your money amongst a variety of index funds, as follows:
- 10% into large-cap S&P 500 index stocks
- 10% into large-cap value stocks
- 10% into U.S. small-cap blend stocks
- 10% into U.S. small-cap value stocks
- 10% of the portfolio to four more important asset classes:
- 10% into international large-cap blend stocks
- 10% into international large-cap value stocks
- 10% into international small-cap blend stocks
- 10% international small-cap value stocks
- 10% in emerging markets stocks
Index funds are exchange-traded fund (ETF) or mutual fund. ETFs and mutual funds that are pooled investments of stocks or bonds. They offer investors a highly diversified opportunity to invest in a specific index, sector, or a wide range of other portfolio compositions.
When it comes to index funds, these funds’ portfolios are constructed specifically to mimic the action seen in the underlying index. Index funds — in particular low-cost index funds — should have a place in just about anyone’s investment portfolio.
Ultimate portfolio requires owning and periodically rebalancing 10 component parts.
The “ultimate” all-equity portfolio automatically takes advantage of stock-market opportunities wherever the opportunities might be.
“A low-cost index fund is the most sensible equity investment for the great majority of investors. By periodically investing in an index fund, the know-nothing investor can actually out-perform most investment professionals.” Warren Buffett
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