Buy and Hold

Belief that all markets eventually go up

An investment strategy in which stocks are bought and then held for a long period, regardless of the market's fluctuations. The buy and hold approach to investing in stocks and mutual funds rests upon the assumption that in the very long term stock prices will go up.

Buy and Hold strategies can often be very volatile as portfolio holdings fluctuate up and down due to business cycles, market corrections, and other economic events.

A buy and hold strategy will reduce transaction costs associated with trading and may also reduce or defer taxes payable on capital gains.
 

"If one could preserve their capital by missing the worst 5 days of each year from 1966 to 2001, you would amass a portfolio that would be 84 times as large as a buy-and-hold approach."

Downside Risk to this strategy

The downside of a buy and hold investment strategy is that significant capital erosion can occur in major down trends in the marketplace. The 3 year bear market downtrend that started in 2000 has devastated the portfolio holdings of many buy and hold investors.  

Had these investors simply sold their holdings and moved into cash they could have preserved their capital.

Mutual Fund Industry Bias

The mutual fund industry and many of its sales representatives have a vested financial interest in ensuring the general public buys their funds and holds them for a long time.  Short-term trading or selling of the funds during downturns reduces their earnings and capital under management.  For a complete look at this bias review our page on the downslide of mutual funds.

Buy and Hold is an outdated concept.  Better alternatives are now available.

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