There’s no greater feeling than seeing the value of your shares rise. Seriously, while you’ve been sitting on your ass binge watching Firefly Lane & eating a bag of Doritos, your money has grown. How fkin cool is that?! You know what’s not so cool though? Checking your shares to find out that they’ve crashed… hard.
Imagine that you micro-invested nearly $990 over the last few months only to have it now be worth $950. You lost nearly $40. What the fuck is up with that? The thing about that hypothetical scenario is that it ain’t actually so hypothetical for me. I started micro-investing into Spaceship three months ago and check out my returns.
Not only has my Spaceship portfolio lost value, my entire portfolio value has decreased recently. Am I upset? A little. Am I worried? Naaaaaah. I’m not worried about the recent downturn in the share market for one reason – I follow the buy and hold investment strategy.
What is “Buy and Hold” Investing?
The buy and hold investment strategy is one that has been around since the dawn of time. Alright, that is definitely an exaggeration but I swear it’s been around for a pretty bloody long time. In fact, it’s the investment strategy that Warren Buffett himself swears by. And if it’s good enough for Warren Buffett, then it’s sure as hell good enough for me.
Basically, the buy and hold investment strategy just means that you hold on to your investments for a really long time. I’m talking til you’re old and grey. In the short-term, investments go up and down, and that is totally normal. Over the long-term though, successful businesses and economies grow. Look, for example, at the chart that tracks the performance of the top 500 companies (S&P 500) in the US over the past 90 years. It’s definitely had some pretty steep downfalls, but overall it’s pretty clear that the US economy has grown significantly. By sticking to the buy and hold strategy, I’m banking on the fact that over a long period of time, my investments are going to increase in value again.
How Does The “Buy and Hold” Strategy Compare?
Everyone has a different strategy for the share market. When I first started investing, my Uncle taught me the ins and outs of the buy low, sell high strategy. Basically, he buys shares in a company when the price is low and then sells the shares when the price is high in order to make a profit. That’s all well and good, and I’m sure a lot of people are successful at making money from this, but I just honestly can’t be fked with it. For me, this active investment strategy takes too much work and too much time. The buy and hold strategy is more of a passive investment because, once you’ve purchased the shares, you don’t have to do anymore work (and the less work I have to do, the better!).
The buy low, sell high method is also a lot more risky than the buy and hold strategy. For example, the average annual return rate of the S&P 500 is roughly 10% (some years this will be lower & some years this will be higher). That means that if you buy and hold shares that track the S&P 500, you can expect to see this kind of return over the long-term. On the other hand, if you actively buy and sell shares constantly, you’re likely to get underwhelming results. In fact, in 2019 a study found that over the previous 5 years 80.8% of Australian active investment funds underperformed the S&P/ASX200 and more than 80% of large-cap funds in the US underperformed the S&P 500. Hence why my personal choice is to stick to a passive buy and hold investment strategy.
Why Does The Share Market Fall?
There’s a whole heap of reasons why the share market drops in value sometimes. Massive events like 9/11, the 2008 global financial crisis and COVID all caused significant market crashes, but there’s also other reasons why the market can fall. A market correction is one of these reasons.
A market correction occurs when the value of the share market drops suddenly (kinda like what it’s doing at the moment). Usually, it happens because the prices of shares were over-valued and so the market has to drop back a bit for the prices to fall to what they’re really worth. But don’t worry, market corrections are really common. Between 1980 and 2018, the market experienced 37 corrections, yet over the long-term the market still increased in value.
What I Do When The Share Market Falls?
When the share market falls, it can be tempting to panic, cry and then sell all your shares as quickly as possible because you undoubtedly just want to get the hell out of there. Buuuuut, I’m not going to do that.
If you hold some long-term solid investments, then they’re most likely going to increase in value again sometime soon. You’ve just gotta be patient. My investment portfolio is made up of IVV (which tracks the top 500 companies in the US), VAS (which tracks the top 300 companies in Australia) and ASIA (which invests in the 50 largest tech companies in Asia). My Spaceship Universe portfolio invests in a mix of “world-changing” companies such as Spotify, Microsoft and Apple. My Raiz aggressive portfolio invests in a mix of Australian large cap stocks, Asian large cap stocks, European large cap stocks and American large cap stocks. I’m confident that all of these investments are strong enough to increase in value again.
So, what am I going to do about the fact that all of these shares have recently lost value? Absolutely nothing. I’m going to keep investing money that I don’t need anytime soon and I’m just gonna keep letting the share market do it’s thing.
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The Stingy Bitch
Based in Sydney, Australia.
Created in 2020.
This site and all of it’s contents are provided for entertainment purposes only and do not constitute personal financial advice. All products that are mentioned are general product advice only, not personal product advice. Not all options are presented and my opinions are subject to change. All content and posts have been prepared as a general summary only and is not intended to be financial advice with respect to any particular matter. This post should not be relied on with respect to any particular matter. If you have questions about any aspect of the content or this site or otherwise require personal financial advice, you ought to seek financial advice. The author disclaims liability to any person who relies on this post.
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