Buy-and-Hold Indexing

What buy-and-hold indexing really means

In a buy-and-hold indexing strategy, you:

• Choose a sensible asset allocation.
• Use diversified index funds or ETFs to match that allocation.
• Contribute regularly (for example, monthly or on each payday).
• Rebalance occasionally to keep your asset mix on target.

You are not trying to:

• Predict short-term market moves or “call the bottom.”
• Pick the next superstar stock.
• Jump in and out of the market based on headlines.

The goal is not perfection. It’s a plan you can actually stick with when markets are noisy or scary.

Why buy-and-hold indexing is hard to beat

Buy-and-hold indexing works for three main reasons:

• Most trading is a zero-sum game after costs: for every buyer there’s a seller. Broad index funds simply own the market instead of trying to outsmart it.
• Costs compound against you: high fees, frequent trading, and behavioural mistakes quietly erode returns over time.
• Behaviour improves with fewer decisions: a simple, rules-based plan reduces the temptation to tinker during every market swing.

Our sections on What Is Investing? and Risk vs Return explain why owning broad markets for long periods has historically rewarded patient investors — even though short-term returns can be very bumpy.

The four drivers of long-term results

In a buy-and-hold indexing approach, your long-term outcomes are driven by four things you can actually influence:

You can’t control markets, but you can control costs, diversification, taxes, and behaviour. Those levers quietly compound in your favour (or against you) over decades.

Low-fee vs high-fee: an illustrative case study

Fees may look small in a single year, but they add up. Here’s a simplified comparison using the same savings plan and market return assumptions — the only difference is the cost of the investments:

*Illustrative example only: starting $50,000, adding $6,000 per year for 20 years, assuming the same gross market return in both cases. Actual results will differ.

That gap of almost $150,000 comes purely from fees. The higher the costs, the harder your portfolio has to work just to keep up.

For a deeper dive into costs, see ETF Expense Ratios & Fees and test scenarios with the CAGR Calculator.

How to implement buy-and-hold indexing

You can implement this strategy with just a few steps:

• Define your asset allocation: decide on a stock/bond (and possibly cash) mix that matches your time horizon and comfort with risk. See Asset Allocation.
• Choose your building blocks: select one or a few diversified index funds or ETFs that match your desired mix. Many investors use broad-market stock and bond ETFs, or a single all-in-one ETF.
• Automate contributions: set up automatic monthly or bi-weekly deposits and purchases where possible.
• Set rebalancing rules: decide in advance how often you’ll rebalance (for example, once a year or when allocations drift more than 5 percentage points from target).
• Write down your behaviour rules: note what you will not do, such as panic selling during a downturn.

Our Rebalancing 101 guide explains practical ways to reset your portfolio back to target without turning it into a full-time job.

Example: simple written rules for buy-and-hold indexing

Here’s an example of how a one-page plan might look in plain language:

• Target 80% stocks / 20% bonds for long-term growth (adjust as I get closer to retirement).
• Use two low-cost ETFs: one global stock ETF and one broad bond ETF.
• Invest $500 on the 1st of each month, split according to my target allocation.
• Rebalance once a year in January or when either asset class drifts more than 5 percentage points from target.
• During market drops, do not sell based on headlines. Only sell to rebalance or fund genuine needs.
• Review my plan once per year, not every time markets move.

You can adapt these rules to your own numbers and risk level. The key is to make your strategy explicit, so you’re not reinventing it during every bout of volatility.