Understanding buy-and-hold investing - a long-term strategy that Warren Buffett swears by
- Buy-and-hold is a long-term investment strategy that involves purchasing securities and keeping them in your portfolio for a long period of time.
- Some investors say that buy-and-hold
investingis the best way to manage risk and work toward long-term financial goals.
- Opponents argue that you could get better results with a hands-on approach to your portfolio. However, historic results typically favor a passive investment plan.
We've all heard the saying: Good things come to those who wait. This can be applied to investing, where you can choose to buy the stock of a company you think will be successful over time, with the expectation of long-term profits. This is known as a buy-and-hold strategy.
What is the buy-and-hold strategy?Buy-and-hold investing is a strategy where passive investors purchase an investment, like a stock or mutual fund, and keep it for a long period of time despite changes in the market. Many famous investors, such as Benjamin Graham and Warren Buffett, are well-known fans of buy-and-hold investing.
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Should you try the buy-and-hold strategy?
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. For example, the average 10-year stock market return is 9.2%.
But not all investors are fans. 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.Important: 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 financial takeawayThe buy-and-hold strategy is a form of passive investing, and it's easy to see why it's become a go-to approach for most people.
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.A comprehensive guide to investing in stocks for beginners How to hedge against inflation with investments that keep pace with rising prices What to know about speculation: When investors buy high-risk assets with the expectation of significant returns Short selling is a high-risk but high-reward trading strategy that profits from a stock price's fall
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