How to make the most of buy-and-hold investing, a strategy Warren Buffett swears by for long-term financial growth

man analyzing stock chartTowfiqu Photography/Getty ImagesBuy-and-hold investing involves purchasing stocks or other securities and keeping them in your portfolio for a long time.Towfiqu Photography/Getty Images

Buy and hold investing is an investment strategy where you purchase an investment, like a stock or mutual fund, and keep it for a long period of time. Many famous investors, such as Benjamin Graham and Warren Buffett, are stalwart fans of buy-and-hold investing.

Over a short period of time, financial markets tend to fluctuate. Stock and other asset prices go up and down almost constantly during trading hours. Graham, the author of "The Intelligent Investor," equates buying and selling stocks on a short-time horizon to gambling. He says that true investing takes place over a longer time span.

Whether you manage your own portfolio or work with a trusted financial adviser, buy-and-hold investing is the best investment strategy for most people. If you are investing for retirement or other goals at least 10 years away, buy-and-hold investing is a natural fit.

What is buy-and-hold investing?

Just like the name implies, the idea behind buy-and-hold investing is to buy a stock or other investment and hold it for a long period of time.

If you look at active investment fund managers, you can find very strong evidence as to why buy-and-hold investing, or passive investing, works better for most people.

Recent data found that just 8% of actively managed funds beat their performance benchmark over 15 years. If only one in five people with an advanced degree who spends 60 hours per week on Wall Street can't beat a passive investing strategy, clearly buy-and-hold has something to it.

Open a brokerage account today to get started with buy-and-hold investing:

It's important to note, however, that buy-and-hold investing can apply to nearly any type of stock or fund. A well-researched, diversified portfolio of stocks that you plan to buy-and-hold for a long period of time certainly qualifies as buy-and-hold investing.

The strong argument for buy-and-hold investing is that, over a long enough period of time, a well-run company should increase in value. Buying and holding allows you to ride out the waves and noise of the markets and capture that gain in your portfolio.

Over a long time horizon, the S&P 500 index, a listing of 500 of the biggest US stocks, offers historical returns of about 10% per year.

Not all investors are fans, however. Some mutual funds do fall into the group that can outperform the market, and actively managed fund advocates say that the biggest advantages can be seen in a down market. That's something we have not experienced in a while.

Michael Burry, an investor made famous by the book and movie "The Big Short," went as far as to say that the current buy-and-hold index fund trend may be causing a bubble in the market.

Buying and selling stocks quickly may be exciting, but it is also very risky. Where your retirement and future are involved, you don't want your portfolio to feel like a Las Vegas casino.

If a slow-but-steady route to growing your wealth sounds enticing, buy-and-hold is probably the best investment strategy for you.

Ready to try the buy-and-hold investing strategy? Open a brokerage account today:

More coverage from How to Do Everything: Money

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