Buy and Hold
Candlefocus EditorThe underlying assumption of this strategy is that even if the stock market experiences short-term fluctuations, the stock market will return to its long-term average growth rate. If an investor buys and holds stocks over a long period of time, they should benefit from the long-term returns of the stock market. This also assumes that the investor is aware of the risk but still believes that over a long period of time the stock will remain relatively stable compared to the current market conditions.
Buy and hold strategies can be advantageous for investors due to several factors. Chief among these is the fact that the passive nature of buy-and-hold investing means that capital gain taxes can be deferred for a longer period of time. This can result in significant savings for investors as capital gains taxes can be quite expensive. Additionally, the long-term nature of buy-and-hold investing means investors do not have to worry about day-to-day stock market fluctuations and can commit to a holding period without constantly monitoring their positions.
Critics of the buy-and-hold strategy argue that it can backfire if investors are not careful. The risk arises when an investor holds on to an underperforming stock or when an investor fails to sell when there is a buy opportunity. If investors do not continually monitor their investments and read the news, they may be at risk of not selling at optimal times or holding on to an underperforming stock.
In conclusion, buy-and-hold investing can be a good strategy for investors who want to avoid the costs and risks associated with actively managed funds and who want to benefit from a long-term return of the stock market. However, it is important for investors to understand the risks associated with the buy-and-hold strategy and it is important for investors to continually monitor their positions to ensure they are taking advantage of buy opportunities and avoiding any potential losses from holding on to an underperforming stock.