Financial Advisors Advocate Buy-and-Hold Strategy for Long-Term Success

Financial advisors recommend a buy-and-hold investment strategy with diversified portfolios to mitigate market risks and emotional decision-making. Diversification through ETFs and asset allocation can help investors achieve long-term financial stability and reduce exposure to market volatility.

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Mazhar Abbas
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Financial Advisors Advocate Buy-and-Hold Strategy for Long-Term Success

Financial Advisors Advocate Buy-and-Hold Strategy for Long-Term Success

Financial advisors are emphasizing the importance of a buy-and-hold investment strategy to ride out market fluctuations and achieve long-term financial goals in 2024. This approach, which focuses on risk management and diversified portfolios, aims to mitigate the impact of emotional decision-making and short-term market volatility.

Why this matters: A well-diversified investment portfolio can help individuals and families achieve long-term financial stability, which is critical for economic growth and social well-being. By adopting a buy-and-hold strategy, investors can reduce their exposure to market risks and make more informed decisions about their financial futures.

Diversification plays a vital role in stabilizing the overall risk of a portfolio by combining individually volatile assets. David James, managing director and advisor at Coastal Bridge Advisors, explains,"When stocks go down in value,high-quality bondsoften produce positive returns. This is a very basic example of how to build real diversification."

Exchange-traded funds (ETFs) have gained widespread acceptance as a tool for retail investors to achieve diversification easily. These funds offer exposure to a wide range of asset classes, making it simpler for individuals to create well-balanced portfolios. Michelle Cluver, head of ETF model portfolios at Global X ETFs, notes,"Different asset classes provide vastly different return profiles during distinct macroeconomic and market environments."

Historical data supports the effectiveness of diversification in reducing risk and increasing returns. A hypothetical portfolio comprising 70% U.S. stocks, 20% 10-year Treasurys, and 10% gold would have delivered competitive returns with significantly lower risk compared to a 100% U.S. stock portfolio. The diversified portfolio achieved an annualized return of 10.1% versus 10.5% for the all-stock portfolio, with an annualized standard deviation of 11.4 compared to 15.8.

Financial experts have highlighted 10 ETFs that cover various asset classes and investment strategies to help investors build diversified portfolios. These include the AOM, a one-stop-shop asset allocation ETF with a 40% equity and 60% bond split; URTH, an equity ETF tracking the MSCI World Index; and BNDW, a bond ETF tracking the Bloomberg Global Aggregate Float-Adjusted Composite Index.

Adam Grossman, global equity chief investment officer at RiverFront Investment Group, emphasizes the importance of simplicity and asset allocation decisions in constructing a well-diversified portfolio. Bryce Doty, senior vice president and senior portfolio manager at Sit Investment Associates, notes that the increasing availability of bond ETFs allows investors to further diversify their fixed-income exposure.

As investors face the challenges and opportunities of the current market environment, financial advisors stress the significance of maintaining a long-term perspective and adhering to a disciplined investment strategy. By embracing a buy-and-hold approach and focusing on diversification, investors can potentially mitigate the impact of market fluctuations and emotional decision-making, thereby increasing their chances of achieving their financial objectives.

Key Takeaways

  • Buy-and-hold strategy helps ride out market fluctuations and achieve long-term goals.
  • Diversification reduces risk and increases returns by combining volatile assets.
  • ETFs offer easy diversification across asset classes for retail investors.
  • Historical data shows diversified portfolios deliver competitive returns with lower risk.
  • Simple, disciplined investment strategy and long-term perspective are key to success.