Aaron Brown, Columnist

Buying and Holding the Market Has Many Pitfalls

Trying to mimic the performance of the S&P 500 leaves you overexposed to overvalued companies, and underexposed to undervalued ones.

May 6, 2018 at 11:00 AM UTC

By Aaron Brown

Aaron Brown is a former head of financial market research at AQR Capital Management. He is also an active crypto investor, and has venture capital investments and advisory ties with crypto firms. He is the author of the soon-to-be-released "Wrong Number."

Hidden costs.
Photographer: BRYAN R. SMITH/AFP

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Perhaps the best-known piece of financial advice is that retail investors should buy and hold the market, which in practice usually means owning an index mutual fund or exchange-traded fund that mimics the performance of the S&P 500. This has been a winning strategy for investors over the decades, outperforming fads that come and go and paying for active management.

S&P 500 stocks are cheap to trade and available in retail-friendly form. They are watched closely by legions of expert financial analysts. They represent most of the big sectors in the world and companies that do business in nearly every country and hold nearly every kind of asset. So they are sensible choices for the core of most investors’ growth portfolios.