Over the last few months I have had several conversations about portfolio stratagies with both registered reps and individual investors. It seems to me that the overall concensus among reps is that buy-and-hold is the way to go. Their logic is simple. Over the long run the market ultimatly goes up. Over the last 20 years the average has been around 12% a year and close to 7% per year sense the American markets have started. Most reps hold on to the belief that if you just hold on to the stocks that you own they will eventually increase in value. Actively managing these stocks (buying and selling based on the market) could cause you to miss the best trading days of the year.

On the other hand, proponents of Active Management claim that they don’t have centuries to invest. Most people invest for less than 30 years, and they can’t afford to retire when the markets are down 10-20%. So they watch the market and make trades based on signals. If they miss the best trading days of the year, that’s OK, they also miss the worst. The down side to this approach is that the investor needs to make a higher percentage on the stock to offset the trading fees.

Buy-and-Hold is the traditional favorite of the professionals but I’m wondering if the current market conditions are making them change their mind. In order to recover from a 50% loss (which is what many investors experienced this year) you need to make 100% on what you have left. At the market average of (roughly) 7%, this would take 10 years. Now consider the number of people that will retire in the next 10 years. Do you think it is still better for them to buy-and-hold their investments (even if they’re in conservative portfolios) or would it be better for them to cash out with what they have and wait for the market to start recovering?