The buy and hold strategy is a popular concept among investors who prefer long-term investing options. The name of the strategy supposes buying an asset and holding it for as long as possible. Unlike typical traders mainly aimed at buying and then selling an asset, buy and hold investors generally do not sell stocks, bonds, or other instruments, as they appear to be the main source of income.
Although the strategy is used for many years by many proven and experienced investors, it has specific pros and cons. In this article, we will learn about how to buy & hold as well as what major advantages and drawbacks the approach may have.
When one decides to “buy and hold”, it means he or she wants to invest in a specific asset to be used as a long-term investment option. When we say “specific assets”, we generally mean stocks, real estate, or bonds as major options. It does not matter what you actually buy. The main idea is to buy without the intention to sell in the short-term perspective, even if the market makes unexpected moves and swings.
The methodology considers buying either financial or non-financial assets and keeping them despite current market instability. One may observe rapid drops at some point. However, he or she must avoid the temptation to sell the asset. Whatever happens in the market, your main mission is to stay involved throughout all of its cycles including both uptrend and downtrend phases.
Of course, it does not mean every stock you buy and hold can generate profit. The strategy must be applied with a specific mindset. It means purchasing assets that can potentially exceed their current value. Market timing does not play a vital role here.
While being one of the most popular long-term approaches, the buy and hold strategy comes with a set of advantages for investors of any level. At the same time, you need to clearly realize that the growth can be slower than you can expect. Furthermore, different types of assets offer physical ownership, for example, real estate, which also makes most investors feel a bit more confident about future returns and the asset value.
So, the main advantages are as follows:
Despite all benefits, the approach comes with several drawbacks that are not really discussed a lot. That is why most beginners ignore or underestimate them. The main disadvantages of the buy and hold strategy include the following:
The buy and hold strategy is a good option for those who look for a steady portfolio and stable profit. It is very popular with both beginner and experienced investors. What’s more, it is quite easy to apply. You only need to find an asset that will exceed its value in the long run. At the same time, the approach will never work for active traders looking for increased liquidity and fast access to cash. Besides, the concept requires confidence and discipline to stick to the long-term investing plan.
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.