Buy-and-hold investing
If there's any one lesson we can take from the breakdown of annual results vs. the average, it's that investors are far more likely to earn the best returns by investing for the long term. There's simply no reliable way to predict which years will be good years and which will underperform or even lead to losses.
But we do know that, historically, the stock market has gone up more years than it has gone down. The S&P 500 has gained value in approximately 40 of the past 50 years, generating an average annualized return of 9% to 10%. Despite that, only a handful of years actually came within a few percentage points of the actual average. For far more years, it either significantly underperformed or outperformed the average, rather than being close to it.
What's a person to do? Buy high-quality stocks, ideally regularly, across all market conditions, and hold those investments for many years. The evidence is overwhelming that investors who try to trade their way to higher returns with short-term moves or who buy and sell based on projections of short-term peaks and bottoms generally earn below-average returns.
Moreover, those strategies require substantially more time and effort. They can also result in higher fees and taxes that further reduce gains. If you're looking to build wealth, investing in stocks is an excellent place to start. But to get the best returns in stock investing, use the method that's tried and true: Buy great stocks and hold them for as long as possible.
