Buy and hold investment strategy overview
The buy and hold investment strategy is probably the most common investing strategy in use.
The basic concept behind the strategy is that the stock market over time will give you a good rate of return
regardless of the short-term fluctuations in stock price. The term short-term fluctuations can even be
multiple year bear markets such as 2000-2002. Buy and hold doesn't necessary mean holding a stock forever. Some investors will buy stock and hold it for a minimum of a year in order to qualify for long term capital gains tax. After that period they will re-balance their portfolio selling losers and keeping winning stocks.
Buy and hold investment strategy risk vs reward
The risks associated with using the buy and hold investment strategy varies based on two factors. First being the timing of your initial purchase. If you bought stock near the end of a bull market you will have to either sell at a loss or waiting until the stock comes back from the bear market. Secondly, the length of your holding period. If you re-balance your portfolio selling poor performing stocks and you are in a bear market.
The rewards of using a buy and hold investment strategy varies greatly based on what stocks you have selected and what timeframes you are holding. What is apparent based off the number of investors who use this investment strategy is that is does have it's strengths and can be used effectively to produce good returns.
Buy and hold investment strategy time to manage
The buy and hold investment strategy is one of lowest maintenance investment strategies available.
Buy and hold investment strategy advantages
If your holding period is longer than one year than the lower capital gains tax rate will save your gains from the tax man as compared to shorter-term investment strategies. Commissions will be lower as compared to other more active investment strategies. It is extremely easy to maintain this investment strategy and can even be ignored for long periods of time.
Buy and hold investment strategy disadvantages
The buy and hold investment strategies tends to produce more average returns if the holding periods expand into bear markets which will eat up previous gains. This strategy also does not fully utilize the power of compounding of profits as compared to shorter term strategies.
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