You get asked what the minimum holding period for stocks is. What’s your answer/advice?
- ~2-3 years
- ~5 years
- ~10 years
- ~15 years
- ~20 years
- Other
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voters
Minimum for what. I’ve held stocks for less than 1 minute. Usually because I hit the buy button by accident instead of sell!
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It depends.
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I have some reservations against strict “minimum” recommendations.
Yes it makes sense to plan not touching it for some time (e.g. 10 years).
But IMO nothing speaks against using that money after 2 years if there is no loss.
On the other side, if you keep it for 10 years and then market drops 40% its probably better to not sell, even though you fulfil some golden 10 years holding rule.
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Thanks for the topic. I read an article recently, don’t think I can find it. It was some financial mathematics. Authors explained that, similar to bonds, stocks also have “duration”. Duration here means how long you have to hold it for the investment return to converge to the expected result. So it was something like 5 years for “value” stocks and 15 for “growth” stocks, from what I remember.
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Historically it took 15 years to recover the biggest stock market crash ever recorded. 6-7 years from the alltime-high before the financial crisis to regain that level again.
I think 10 years should the minimum to cover a worst case scenario in todays world. But that‘s a onedimensional view anyway. Not accounting for monthly investments etc.
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for a 100% stocks portfolio?
About 10 years. Benchmark for that is Dotcom into GFC. You’d pretty much need 10 years from the top of Dotcom to break-even after inflation.
Great Depression is unrealistic to repeat in my opinion. The circumstances today are just totally different and lots of the stuff is simply not possible anymore.
A step in between 5-10 years would have been nice though for voting.
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A lot Swiss banks recommend 7 years for 100% stocks.
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Most normal people have a balanced portfolio, e.g. 60/40. For such situation you cannot apply the logic of holding period, the stocks are bought and sold all the time.
If you have a stock portfolio, but plan to spend money in the future, e.g. buy a house, you may also decide to harvest the equity premium, even on shorter horizons like 1-3 years. If the market does not go in the desired direction you may just delay the house.
Point: there is no minimum holding period. There are risks and rewards.
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I get that your question is not trying to explore this, but others have pointed in a similar direction, i.e. this is like asking “how much cash do you need to hold”.
Totally depends on your personal situation.
Super generally speaking (for myself, mostly), factoring out all those personal circumstances, for individual stocks I’d say that 2-3 years is the absolute minimum, five years seems acceptable.
Beyond that, I (personally speaking again, as a stock picker) would need to re-visit the business’s circumstances.
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Also, most statistics don’t account for deflation which shortened the time to break-even considerably.
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That’s not what duration is at all! Duration is a measure of a bond’s sensitivity to changes in interest rates.
Maybe it was “maturity”, I don’t remember details, unfortunately.
I once did an evaluation of the historical performance of Swiss stocks (Pictet index). The longest zero-growth period in the past was 12 years. I haven’t done a detailed evaluation of US stocks, but my hunch is that the results would be similar.
Of course, that’s the past. It is theoretically possible for the stock market to permanently stagnate or even shrink, if you take all possible scenarios into consideration. But history is the best we have to work with. So my recommendation to people not familiar with the stock market is more than 12 years for buy-and-hold.
Of course there is also day-trading, or simply selling out when you are satisfied with the price you get (or when circumstances force you to), but that’s another ballgame.
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I recently did some calculations based on MSCI ACWI IMI TR in CHF, adjusted for Swiss inflation. Max recovery period was 196 months (16.33 years), March '00 until July '16.
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Did that include dividends?
Same question.
Indices often dont include them.
Which would drastically reduce recovery time.
Because looking at testfol.io and adjusting for inflation:
I get about 10.5 years with VTSIM (simulated VT)
This would suggest anywhere between 23 to 27(!!!) years, depending on how you cut the curve in the Great Depression. The upper limit is more years than I’ve been an adult, and more years than it’ll take me to qualify for full pension.
Of course if one kept buying/reinvesting dividends the recovery would be much quicker, but it’s still damn brutal.
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Tho Great Depression might be special, there was no central bank to absorb the shock and this lead to a deflation spiral.
As long as we don’t go back to the gold standard or switch to bitcoin standard it’s not something that would repeat (we learned from our mistakes).
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Ohhh, you make me drooling! Can I see these data?
I wanted to do the same, and I have many different ideas how to slice and dice these data, but no time, as usual.
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Yes, it’s the Total Return variant.
It’s some messy sheet/shit, I would need to clean it up first. Let me see what I can do.