Buy & Hold vs Take Profit & Reinvest

We are seeing a lot of smart strategies claiming to beat the index but not all the strategies gives better returns than the buy and hold. So today I tested one strategy where I will sell 25% of my holding when I get 20% profit. And then reinvest that profit when the market falls by 5%.

With the buy and hold, you will get 12.8% XIRR in the last 15 years. I have created the Google sheet, where I have simulated 15 years data and I have invested every month at the start of the month. I have invested 5K per month and thus at the end of 15 years I will have more than 13K units and the total portfolio value is Rs 36 lakh.

Along with that I have also simulated one more atartegy where I will take sell 25% to take profit after 20% profit. And then I will reinvest the profit whenever the market falls by 5% month to month. Now using this strategy I got 12.86% XIRR which is little better than the buy and hold, but the units in this strategy is less. So at the end of the 15 years you will have less units if compared to the buy and hold.

So that means even though the XIRR is good, it is not the great strategy. And thus I feel if your time horizon is l9ng term say 15 years or above. The best startegy is to buy and hold. Now when you are approaching your goal end date then you can start converting the units to debt ot cash. And thus this strategy proved that timing the market is not always better.

I will try to simulate more strategies to see if there is any strategy which is beating the buy and hold in the long term.

Posted Using INLEO