The Ultimate Buy-and-Hold Strategy

I listened to Paul Merriman of Merriman Capital Management give his ‘The Ultimate Buy-and-Hold Strategy’ workshop online. He makes a very good argument for diversifying your portfolio through no-load mutual funds. I found that Merriman’s article on this subject has also been updated, showing how a series of simple concepts can benefit patient investors. This update to the strategy also incorporates the five intervening years of returns and adds a new portfolio to the mix.

He recomends putting your ‘investment plan’ into writing so that it is mechanical and you are able to remove emotion from the buy/sell process. My summary of the strategy is designed to help me ‘think-through’ his advice and write my thoughts as I do so.

According to Merriman, the average investor is unable to successfully use market-timing strategies. His investment firm decided to seek out a buy-and-hold strategy that could be be used to increase investment returns and reduce risk.

In theory, a “perfect” investment strategy would be cheap, easy to implement and risk-free. It would make you fabulously rich in about a week. Tax-free, of course. We haven’t found that combination, and we don’t expect to. But the Ultimate Buy-and-Hold Strategy is the best real-world substitute that we’ve found.

This strategy is designed to produce higher returns at a lower risk with minimal transaction costs.

The Ultimate Buy-and-Hold Strategy uses no-load index funds to create a sophisticated asset allocation model with worldwide diversification and the addition of value stocks and small-cap stocks to a traditional large-cap growth stock portfolio.

This strategy is not available through a single mutual fund but can be built using a combination of low-cost index funds. It is definitely not a short term strategy but, as the title of the strategy suggests, is a buy-and-hold strategy for the long term. The strategy promises there will be times your portfolio will not ’shine’ but, based on historical data, this strategy should produce good returns on a long-term basis while minimizing downside risk.

The Ultimate Buy-and-Hold Strategy is not based on anything that happened last year or last quarter. It’s not based on anything that is expected to happen next quarter or next year. It makes absolutely no attempt to predict what investments will be “hot” in the near future. If that is what you want, you won’t find it here.

But if you want superior long-term performance from a buy-and-hold approach, the Ultimate Buy-and-Hold Strategy is the best way I know to get it.

The strategy’s success is based on investing in a diverse set of asset classes rather than trying to buy or sell at exactly the right time or choosing the right stocks or mutual funds.

The truth is this: Your choice of asset classes has far more impact on your results than any other investment decision you can make. I know this flies in the face of a lot of conventional wisdom and of almost all the marketing hype that comes out of Wall Street, so I want to repeat it. Your choice of the right kind of assets is far more important than exactly when you buy and sell those assets. And it’s much more important than finding the very “best” stocks, bonds or mutual funds.

In the next post on this subject we will look at building the ‘ultimate’ portfolio.