This Simple Stock Investing Strategy Reduces Risk
If you are looking for a simple stock investing strategy that reduces risk, you’ll find it here. It’s so simple you can be up and on your way in minutes. But first, let’s look at some of the risks associated with any stock investing strategy.
Your investment portfolio has to fight two major risks, the markets and inflation. Market risk is the chance that the value of your stock or ETF will drop. Inflation risk is that your portfolio will not grow fast enough to keep up with rising prices.
To combat these risks, many investors use a “Buy and Hold” approach for reducing market risk. In this article we will explore just how well the “Buy and Hold” approach has worked using the ETF SPY to profit off the S&P 500 Index. SPY should do the same as the S&P.
If we examine the S&P 500 Index, starting 90 years ago and ending at the end of last year (December 31, 2022) we can observe some very interesting facts:
| 1 | Out of the last 90 years, the S&P closed in the red 22 times out of 90 (about 1 out of 4). The biggest decline came in 2008 when the S&P lost 38%. Because this is “Buy & Hold” you ride it out and the S&P did eventually go to more new highs. |
| 2 | Average annual return over 90 years, with dividend reinvested comes to 12%. Adjusted for inflation, you are more around 8% mark. |
| 3 | Over any 15 year time period, SPY will beat most mutual funds. |
| 4 | Over any 15-year period, SPY has never averaged less than a 4.1% gain. |
These figures are based on the S&P 500 Index. To replicate these returns for yourself you buy SPY or a mutual fund that invests in the S&P 500 stocks. Don’t forget you have to pay management fees, which could take 1% or more off your return which is why I like SPY over a mutual fund.
The best part about this, is this simple stock investing strategy reduces risk and takes no time! Just buy and forget until retirement. You too should get an average annual return of 12%.