The buy and hold investment strategy involves keeping the same securities and investment products in your portfolio for the longest possible amount of time.
Buy-and-hold investment is a passive strategy by which investors aim to share the long-term success of an index, a set of securities, or (in the case of stocks) a company.
By using this strategy, you avoid having to manage regular trades and the trading fees that come with them. A popular German stock market motto highlights this fact as follows: “Hin and her macht Taschen leer” which literally means that trading too regularly will leave your pocketbook bare. In Switzerland in particular, high brokerage fees continue to make stock market transactions expensive.
Aside from the lower costs involved, the advantage of buy and hold versus more short-term strategies is that your investments are less vulnerable to temporary or unforeseeable market fluctuations.
The one setback is that the ideal point in time during which to buy your securities only becomes obvious after the fact. Guide: Nobody knows exactly how high or how low rates can fall, or for how long. However, over a period of many years, stock market rates always trend in one direction – up.
Because of these advantages, buy and hold strategies are considered by many financial analysts and investors to be the optimal way to securely grow your wealth. Short-term strategies are, as far as far-sighted investors are concerned, nothing but high-risk speculations.
Investors and traders who are in it for the short-haul, on the other hand, cite a number of drawbacks to buy and hold investment. For one thing, long-haul investors cannot react to and take advantage of short-term market trends. Buy and hold investments can also be highly dependent on the positive business development of a specific company when investments are not distributed across a diverse portfolio.
Another possible disadvantage of the buy and hold strategy is that making long-term market predictions is becoming increasingly difficult. Up until now, market rates have always climbed over the long-term. But nobody can guarantee that things will remain that way over the next 20, 30 or 40 years.
What is known is that as an investor looking to use the buy and hold strategy successfully, you will need both large amounts of patience and be able to afford tying up money in long-term investments without falling short elsewhere. Because of these factors, long-term investment is best suited to people who already have a fair amount of assets which they could, in the worst case, live without.
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