Key Points
Buying and holding stocks rather than constantly buying and selling them often results in superior performance.
Owning a basket of stocks -- in the form of an ETF -- makes it even easier to resist the temptation of more frequent trading activity.
Even the world's best-known stock picker agrees.
Have you embraced the idea of buying and holding rather than constantly swapping out your stocks in search of the next hot trade? If so, good. It's certainly less stressful, and you'll likely do better in the long run with such a strategy. In fact, the data suggests your best bet may well be an entire basket of buy-and-hold stocks in the form of an exchange-traded fund, or ETF, that doesn't require any real ongoing oversight.
And the best overall ETFs to buy and hold are still the SPDR S&P 500 ETF Trust (NYSEMKT: SPY) or the Vanguard S&P 500 ETF (NYSEMKT: VOO), both of which are meant to mirror the performance of the S&P 500 (SNPINDEX: ^GSPC) index. Here's why they're still the best.
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If it's good enough for the world's best-known stock picker...
Giving credit where it's due, Warren Buffett arguably explained it best when he said, "There seems to be some perverse human characteristic that likes to make easy things difficult." Too many investors have convinced themselves that more activity and more risk are the keys to better returns. It isn't.
The data proves it, too. Standard & Poor's ongoing monitoring of all mutual funds' performances indicates that the vast majority of them actually underperform their benchmark indexes. Ditto for hedge funds. The time frame in question doesn't matter either; these actively managed funds largely underperform the broad market across all time frames.
There's an important lesson for ordinary investors buried in this reality. That is, despite these fund managers having the time and access to tools and training meant to produce market-beating results, most of them don't, and nearly none of them do so with any consistency. It's a testament to just how difficult it is to do so. It's certainly not any easier if you're an amateur with fewer tools and less time to pick and monitor individual stocks.
And for what it's worth, Buffett practices what he preaches.
Sure, Berkshire Hathaway holds a bunch of individual stock picks. Most of them serve a very strategic long-term purpose for the conglomerate, though -- generating reliable dividend income. As he explained in his 2013 letter to Berkshire shareholders, for the personal money he'll be passing along when he passes, "My advice to [my estate's] trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.)"
He then adds for good measure: "I believe the trust's long-term results from this policy will be superior to those attained by most investors -- whether pension funds, institutions, or individuals -- who employ high-fee managers."
Even if you still want to own individual stocks
But you just can't bring yourself to not at least try to beat the overall market? That's OK. Consider a combination of stocks and ETFs, with a stake in VOO or SPY serving as the foundation.
Just don't forget the most important idea: Leaving stocks alone and letting time do the bulk of the work is still the key to achieving top performance. The more we tinker and attempt to buy at every low and sell at every high, the more we actually undermine our results.
James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.