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Int. J. Financial Stud. 2018, 6(3), 79; https://doi.org/10.3390/ijfs6030079

Buy and Hold in the New Age of Stock Market Volatility: A Story about ETFs

1
School of Business, Brescia University, Owensboro, KY 42301, USA
2
Economics and Business Department, Berea College, Berea, KY 40404, USA
*
Author to whom correspondence should be addressed.
Received: 27 July 2018 / Revised: 23 August 2018 / Accepted: 5 September 2018 / Published: 6 September 2018
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Abstract

The buy and hold stock market strategy, which gained tremendous popularity in the 1970s, may no longer be such a profitable method for accumulating wealth for the average investor in the new millennium. This paper investigates the relationship between compound return and holding period length to see how long an Exchange Traded Fund (ETF) investment must be held before a positive return on principal is 100% likely. Because the ETF is a relatively new investment vehicle that could be considered particularly well-suited to the requirements of the buy and hold strategy, we begin our investigation here. We find that the compound returns earned over a rolling holding period are much more volatile than one might assume given historic rules of thumb for average return expectations. Using monthly return data for all listed NASDAQ ETFs between their date of inception and 2015, we find it takes ten years for the average probability of a gain on principal to be over 95 percent. View Full-Text
Keywords: buy and hold; ETFs; arithmetic average versus compound returns buy and hold; ETFs; arithmetic average versus compound returns
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This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited (CC BY 4.0).
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Sanderson, R.; Lumpkin-Sowers, N.L. Buy and Hold in the New Age of Stock Market Volatility: A Story about ETFs. Int. J. Financial Stud. 2018, 6, 79.

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Int. J. Financial Stud. EISSN 2227-7072 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
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