At one time in history. You bought and sold “Good companies” But what are good companies? All the good companies from the times of Rockefeller, don’t exist today. “Good” is very subjective. But let’s not dwell on the past. In the future, today’s “Good companies” such as Google and Amazon will be gone as well.

 Today, when we say “buy and hold” we refer to one of the many indexes. The indexes continue purging out the stocks which no longer qualify for the index’s criteria, and adding the ones that do qualify.

As long as you own the index, every employee from every company, from the janitor to the CEO, will be doing their best to work on your behalf. If they lag behind their competitors, they would be expelled from the index.

If I think of the U.S. economy, my favorite investment to follow is the Vanguard Total Market Index VTI (in U.S. Dollars). Investing in US dollars gives me some diversification from my Canadian Dollar centric investments.

If I think of the Canadian economy, my favorite index to follow is XIU.

If I think of the international market, my favorite index to follow is VIU.

I DON’T like to follow nor to own bonds.

My strategy is to buy 1/3, 1/3, and 1/3 of each one of those and hold.

This is a 5-year graph which shows that even under the worst economic period of our lives, a balanced portfolio has delivered positive returns.

 When retirement time comes, the strategy would be the inverse. I would sell the one which has grown the most. And the following year comes and I would sell a bit more of the one who has been performing the best. that way, my portfolio will tend to be balanced all the time.

Why I don’t hold bonds in my portfolio

People buy bonds for stability, not for returns.

It has been well documented, that on a long term basis (10 years or more) stocks outperform bonds. However, people buy bonds to minimize the ups and downs of their portfolios. In short, the main function of bonds in a portfolio is to be a psychological placebo to tell our brain that we are OK. that we will not benefit from the hights, but the lows will not be as low.

For many people, this works. If fact, this is recommended by most financial advisers. So, if you need to reduce the volatility to stay invested in the market, then I think it’s a good idea to have some bonds in your portfolio.

But if you are aware that the market will go up and down, and some times as much as 30% in a matter of a couple of months. If you are OK with that knowledge, then there is no reason to have bonds dragging down your portfolio when times are good.

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