A buy and hold investment strategy calls for the investor to buy assets and hold them for long periods of time. Short-term price fluctuations are not an important part of a buy and hold strategy.
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Ready to learn more about buy and hold investing? Here’s what you need to know.
What is a buy and hold investment strategy?
A buy and hold investment strategy is a relatively passive strategy. The investor will buy an asset of some kind and hold it for the long-term. The goal of this investment strategy aims to see long-term growth of the investment’s value over the course of the holding period.
As a buy and hold investor, you won’t need to worry about short-term price fluctuations or timing the market in the short-term. Typically, buy and hold portfolios are built to be somewhat stable with the potential for long-term growth.
As an alternative to the buy and hold strategy, you could pursue a more active investment strategy. But it would require more regular involvement and more attention to short-term market fluctuations.
Is buy and hold a good strategy?
In general, the buy and hold strategy can be effective. The simple approach to investing has been proven to work through the portfolio of several well-known investors.
A few proponents of the buy and hold strategy include Warren Buffet and Jack Bogle. If two well-respected investors advocate for a buy and hold strategy, then it is likely a good option for most people.
If you are investing with a long-term mindset, then the buy and hold strategy is a good option. If you are looking for short-term gains, then you might want to look for a different approach.
What are the potential benefits of the “buy and hold” investment strategy?
Although the buy and hold investment strategy has several potential benefits, the three most potential benefits include:
- Long-term growth. If you want to build long-term wealth, then the buy and hold investment strategy can help. Look for investments that suit your risk tolerance and long-term growth goals.
- Minimal time requirements. If you don’t have time to manage your investment portfolio on a very regular basis actively, then a buy and hold strategy could be a good fit. The long-term mindset leads to fewer headaches along the way.
- Tax benefits. The taxes on long-term capital gains are more favorable than short-term capital gains.
You may find additional benefits when you dive in to buy and hold investing. But these three benefits are worth thinking about.
What are the potential drawbacks of the “buy and hold” investment strategy?
Every investment strategy has its pros and cons. Let’s take a look at the potential drawbacks of the buy and hold investment strategy.
- Time. When you invest for the long-term, you will have to wait to enjoy the fruits of your investments for a long time. It will likely take some time before you see the results of your investments pay off.
- The future is not a guarantee. The buy and hold strategy has worked in the past. But past performance is not an indicator of future success. With that, consider the risks before building a buy and hold portfolio.
- Limited access to capital. Unfortunately, you’ll have to tie up a large amount of capital in this strategy. You will need to have the discipline to leave your money invested instead of splurging along the way.
Keep these potential drawbacks of the buy and hold strategy in mind before moving forward.
Is buy and hold good for taxes?
Yes. As we mentioned above, the buy and hold strategy can be helpful to lower your tax burden. With the help of long-term capital gains taxes, you may be able to save a substantial amount of money.
In order to tap into the potential savings of the long-term capital gains tax, you’ll need to hold on to your investments for at least one year.
Buy and hold vs buy and sell
In contrast to a buy and hold strategy, you can pursue a buy and sell strategy. A buy and sell strategy is a more active approach to investing. Instead of holding on to investments with a long-term mindset, you have short-term gains as a priority.
If you are looking for more exciting choices and options to manage your portfolio, then the buy and sell strategy’s short-term investment horizon could be the right choice for you.
Remember, you don’t have to go all or nothing with these two strategies. Instead, you can choose to build a portfolio with a combination of these strategies. Based on your goals and risk tolerance, you can decide to focus more or less effort on buy and sell tactics while including some buy and hold investments in your portfolio.
What are the different kinds of buy and hold strategies?
You can pursue the buy and hold strategy with different asset options. Here are two to consider.
Investing your money into the stock market is one way to approach buy and hold investing. You can choose to invest in individual stocks or index funds, but you’ll have to hold them for the long-term to employ the buy and hold strategy.
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Investing in real estate assets is another way to approach the buy and hold strategy. In this case, you would invest in a physical property and hold it for the long-term.
You might choose to rent out the property along the way, or simply hope for the property to appreciate over time. Either way, you wouldn’t sell the property for years to come.
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Should you go for buy and hold investments?
Whether or not you pursue buy and hold investments will depend on your goals.
If you are saving for long term goals such as retirement, then a buy and hold strategy could be a good idea. Although there are risks involved in this investment strategy, it could help you build wealth over the long term.
If you are saving for a short-term goal, such as a home down payment, other strategies could be more lucrative. However, short-term investment strategies typically come with more risk.
Ultimately, you’ll have to decide for yourself if a buy and hold investment strategy is the right choice for your future.
The bottom line
A buy and hold investment strategy can tie up a lot of capital, but the long-term rewards could pay off. Are you ready to start investing? Check out our full guide to investing in real estate. You’ll learn how to get started and pitfalls to avoid.