Passively investing in the stock market has its advantages – it takes very little effort, no homework required, in fact, no knowledge is required, just pick your favorite S&P500 ETF (SPY, IVV,…) invest all your money in the one ETF and track the market. This strategy is known as “buy and hold”, the question is: Does buy and hold work?
Buy and hold is Warren Buffett’s way of investing, a system that made billions for this very intelligent investor.
But, does it work for us mortals?
When testing passive investment strategies like “buy and hold” on paper, it appears like a sound method for following an index benefiting from the fact that markets are biased to the upside. In reality, though, things are not that simple, it’s the “hold” part that is difficult.
Imaging investing 1,000$ per week in SPY ETF during 2017 until now, during 2017 the holding part was easy, 2017 was low vol. year, at the end of 2017 you have about 15K$ net worth.
Then came 2018 – 2020 which are high vol. years with a drawdown of 20% and 35%, making it is mentally very hard to continue the 1000$ deposit into a portfolio that has seen such drawdown on a larger portfolio, 10% loss of a small portfolio is manageable but not on a larger portfolio.
This is why the system works on paper but is very different in reality, passive income investment works when it’s truly passive – completely hands-off.

S&P500 performance over the past 5 years, about to close on a 100% return with increasing volatility

Trade Smartly.