More Straight Talk on Investing

13Buy-and-Hold Really Works

I was attending a Vanguard client conference in Pittsburgh one night in 1997 when a gentleman introduced himself and shared a terrific story. Back in 1958, when the man was in his teens, he had earned $1,200 and had asked his father what he should do with the money. The father and son consulted a financial advisor, who recommended that they invest in a new mutual fund called the Wellington Equity Fund. There the money sat untouched for the next 39 years, growing and accumulating reinvested distributions at an average rate of 13% a year. By 1997, this man's account in Vanguard Windsor™ Fund (as it is known today) had grown to $145,000—more than 100 times his original investment. He just wanted to say thanks! I returned that gratitude, telling him he's just provided one more real example of why getting in the investing game early and being patient can have tremendous results.

If you're determined to succeed at investing, make it your first priority to become a buy-and-hold investor. As the anecdote about the investor from Pittsburgh demonstrates, picking sound investments and keeping them for the long term really works. Not only will this simple strategy put you on the path to accumulating wealth, it will enable you to live your life without devoting a lot of time and energy to managing your investments.

In this chapter, I'll discuss why a buy-and-hold approach succeeds and how to implement it with your own portfolio. I'll then turn to being very blunt ...