Financial Markets Meltdown

[Dean2]

Got some PMs from guys about the buy and hold strategy of investing. I am a fan of it, particularly if your investments are in an account where your dividend and capital gains is fully taxable as it is received. That said, you have to make sure you are buying and holding the right stocks. You can't just do this with every stock, even large blue chip companies and expect good results.

If you had bought $10,000 worth of RBC in 1995, it would be worth $640,000 today if you had reinvested the dividends. You would also be collecting $26,000 in dividend income a year, which is 260% of your original investment. If it had been in Bank of Nova Scotia it would only be $181,000 whereas TD would be $580,000. If you had done the same thing with Manulife it would be worth 60,000 today. You would have done far better in GICs over that 35 year period. General Electric is even worse, it is at $34,000 today. So this also illustrates the problem with ETFs. If you bought a market weight Canadian Banks ETF you get the laggards like CIBC, Scotia, Laurentian, CWB and BMO along with the premium performers like TD and RBC. So as long as you know to buy and hold the high performers you are golden, if you don't know which two or three to pick in an industry then you are better off with the ETF.

If you had done that with Microsoft, as of 2014 it would still have only been worth 50,000, however from 2014 to today that $50,000 has grown rapidly so it is now worth $470,000.

A buy and hold strategy is a whole lot more complicated than just buying a stock and sitting on it. You really do have to be holding the right stocks over the right length of time for that system to work.