Buy-and-Hold Investing Mistakes

Most investors trade too much. They’d be better if by changing their investments less frequently. But buy-and-hold investors also are prone to mistakes. This article identifies several key mistakes to avoid. I’d also add that many buy-and-hold investors don’t understand the importance of low correlations between their investments if they want the benefits of diversification. They think they’re diversified, but they really aren’t. We strive for True Diversification in our Retirement Watch “hedge fund” mutual fund portfolio.

* Treating individual stocks the same as indexes. If you’re buying-and-holding individual stocks, you face special risks. Unlike buy-and-hold investors who buy diversified baskets of stocks — like index funds — you’re subjected to the risk of individual companies. And you need to treat the situation much different.

Investors who bought accessory maker Coach (COH) – are a great example of this reality. Yes, the stock had been a monster winner between 2009 and early 2012. But once the stock started to crack, even buy-and-hold investors needed to be ready to bail out. Buy-and-hold investors who didn’t get out of Coach have seen their 130% gains dwindle to just 11% over the past five years. They would have been better off holding a broad index fund.