Topic Guide
What Is Buy and hold?
Buy and hold is a subject covered in depth across 1 podcast episode in our database. Below you'll find key concepts, expert insights, and the top episodes to listen to — all distilled from hours of conversation by leading experts.
Key Concepts in Buy and hold
Four-fund strategy
A diversified equity portfolio proposed by Paul Merriman, consisting of 25% allocation each to large cap blend (S&P 500), large cap value, small cap blend, and small cap value. This strategy is presented as historically offering higher returns and lower volatility than a single S&P 500 investment due to broad market exposure and capturing various factor premiums [12:14].
Non-traditional index funds
These are ETFs or mutual funds from providers like Avantis and DFA that track specific market segments but employ more active, factor-based selection criteria than typical index funds. Instead of just replicating an index based on market capitalization, they filter for higher-quality companies within a given asset class (e.g., small cap value) based on factors like financial statements and book-to-value ratios, aiming for superior risk-adjusted returns [19:25, 20:27].
Glide path
An investment strategy, commonly seen in target-date funds, where a portfolio's asset allocation gradually shifts over time, typically becoming more conservative by increasing bond exposure and decreasing equity exposure as an investor approaches a specific retirement date or age. Merriman emphasizes that this should be a personalized decision, not a one-size-fits-all approach [27:38, 28:39].
What Experts Say About Buy and hold
- 1.A simple, proven buy-and-hold index investing strategy, when diversified correctly, can outperform most active investors over decades [00:00].
- 2.Paul Merriman transitioned from active management and market timing to passive indexing after a pivotal learning experience at DFA (Dimensional Funds) in the mid-1990s, realizing the power of evidence-based diversification [03:01].
- 3.Diversifying beyond just the S&P 500 into a 'four-fund strategy' (large cap blend, large cap value, small cap blend, small cap value) has historically yielded about 1.5% higher returns with lower volatility compared to a pure S&P 500 portfolio [12:14].
- 4.Non-traditional index funds, such as those from Avantis (e.g., AVUV) and DFA, employ factor-based strategies to select higher-quality value stocks, often leading to significantly better performance than traditional index funds in the same categories [17:22, 19:25].
- 5.Young investors should consider maintaining an 'all equities' portfolio from day one, as market downturns offer opportunities to buy cheap shares and maximize long-term compounding [29:40].
- 6.Regular rebalancing is a counterintuitive but crucial strategy where investors 'take from the rich and give to the poor,' selling assets that have performed well to buy those that have underperformed, thereby managing risk and maintaining target allocations [49:10].