Your money already **IS** in play if you're doing buy & hold. You're just leaving it totally exposed to market disasters.
IMHO, anybody who assumes buy & hold is going to make you rich in the next 20-30 years is delusional. B&H has worked pretty well in the past 100 years, but the game has changed. The US (and the world) is not in the economic position it was in for the last 100 years. You cannot assume the markets will continue working the way they worked in the past -- especially the recent 1980-2000 past.
Ask any Japanese retiree how B&H has worked out for them. The Nikkei 225 index is currently about 72% below its 1990 peak. If you bought & held starting in 1990, you currently have about 1/4 of your account left. That's a TWENTY YEAR SWOON with no end in sight. What would happen to your retirement plans if that happened in the US markets?
And it very easily could. Our current financial mess is a much bigger version of what happened in Japan in the 1990's, and the US govt's response is too close to a carbon copy of what Japan did in the 1990's. (And what the US govt told them, at the time, was the wrong thing to do. Too bad we don't follow our own advice.) Furthermore the Japanese markets tanked in the midst of an unprecedented roaring bull market in the US and many other countries. What might it look like if the US markets went into a similar tailspin, in the mist of a global recession?
So it is my very strong opinion that B&H is NOT going to perform well in the near future. At best the markets might go sideways like they have for the past 11 years. I think you need to practice defensive investing.
I don't recommend jumping in & out like a flea on a griddle. That can be done very successfully, but only by talented professionals who focus on it. But there ARE ways to make sure you don't get massacred if the market tanks.
Here's a very simple example: once a month, calculate the average monthly closing price of SPY, the S&P 500 ETF. If the past month's *low* price is higher than the average, buy SPY. If the past month's *high* price is lower than the average, sell.
Look what this would have done for you in the last 11 years:
When the market tanks, you're out. When the market peaked in 2000, this would have gotten you out about 15% from the absolute top, and you would have sat on the sidelines (in tbills or whatever) while the market dumped 50%. Then you'd have gotten in again 25% off the absolute bottom, rode it up, ducked most of another 57% dump in 2008, etc. Instead of going sideways for 11 years, with gut-wrenching drawdowns, you would have made about 84% profit.
Furthermore you'd have caught about 90% of the 1980-2000 bull market with this strategy. You don't lose anything by following it.
If you want to get crazy with it, you can short SPY when the market's headed down. (Unfortunately it doesn't work to hold SH, the inverse S&P500 ETF, due to obscure reasons having to do with the way they formulate the ETF.) That will MAKE you money while the market's dying. But I know that's outside the comfort zone of most people here. The idea of this approach is just to tell you when to sit on the sidelines, to help you avoid getting killed like the Japanese B&H investor.
Now to be honest, our hapless Japanese investor still would have lost money since 1980, even using this approach. But he would have lost only about ¥2300 per N225 share, instead of the ¥29000 he would have lost by hanging on. In other words, instead of losing 72% of his account, he would have lost only about 6%. If he'd been brave enough to short the market when the system told him to, he would have MADE about a 40% profit on his account. (And that's without compounding, just trading a fixed size.)
No doubt everybody is going to chime in that this is all curve-fit to the past data, and it couldn't possibly work in the future. It's true that I tested it on past SPY data, though a 12-month average is hardly a difficult choice. BUT the results on the Nikkei were totally "out of sample" -- I didn't look at the Nikkei at all when I came up with this. If it cut the Nikkei losses from 72% to 6%, don't you think it's worth considering?
It's not rocket science. It's just saying "when the market goes down hard, you'd rather not be sitting there squirming while your account implodes."
If you believe in the religion of B&H, and you're sure that nothing can possibly beat it -- then good luck to you. I think you'll need it. Better hope we don't go through what Japan did.
