Investing in Equity Funds: Does "Buy and Hold" Deliver on Its Promises?

Martin Spieler: What does financial market research say: do private investors fare better with a more speculative strategy or with a buy-and-hold strategy?

René Nicolodi: The buy-and-hold strategy can indeed be very successful. Buying and holding securities for the long term is especially worthwhile for those who do not want to engage intensively with the market. On the other hand, a speculative strategy can also be effective, particularly in certain phases. However, this usually involves high transaction costs. Additionally, investors take on risks that do not really pay off in the medium or long term. The golden middle path is to pursue a long-term orientation while periodically reviewing the portfolio and making adjustments if necessary.

A buy-and-hold strategy requires a lot of perseverance. This is challenging, especially when there are market fluctuations. Don't most investors fail precisely at this challenge?

That is correct and is related to our loss aversion: emotionally, we generally weigh losses much higher than equally sized gains. As a result, we sell securities too early, at the wrong time, or not at all, and thus suffer a total loss.

It is often advised to hold and leave stocks for the long term. But anyone who had done so with the shares of the major bank Credit Suisse would have almost lost their entire investment.

The best protection against losses with individual stocks is broad diversification. Such exceptional events then carry less weight. However, if investors are faced with such a decision and hold individual stocks in their portfolio, it is worthwhile to consult with a financial advisor to avoid emotional mistakes.

Optimal asset allocation and diversification are considered prerequisites for a successful buy-and-hold strategy. But how does one achieve optimal asset allocation?

The starting point is always the definition of the investment strategy. The question is what level of risk tolerance and willingness investors bring with them. A buy-and-hold strategy pursues a long-term investment horizon. This also speaks for a higher risk: one can have a higher equity ratio and be broadly diversified across different asset classes.

How can a buy-and-hold strategy be implemented with investment funds?

Very well, because the investment universe of funds is incredibly large. Different asset classes and sources of return can be well combined. The easiest way to implement this is with a strategy fund because the asset manager has already done this work. Today, you can find various options for your respective risk profile, as active, passive, and sustainable strategy fund solutions are available on the market.

Does a buy-and-hold strategy even require rebalancing the portfolio – that is, adjusting the proportions after price changes – or can investors really let a security run for the long term?

The price development of securities leads to a significant change in the predefined allocation over time – and the risk profile changes accordingly. Regular rebalancing, which returns to the starting point of asset allocation, can therefore be sensible.

This interview was first broadcast in a slightly modified form on the programme "Geld" (in Swiss German only) on 7 March 2025 on Tele 1, Tele M1, and TVO.