Buy and Hold Investing
Date Added: September,
2000
By Chris Stallman
| E-mail
"A while ago
I was talking to my dad about investing. He told me that I should
be a buy and hold investor. What is a buy and hold investor? I hope
you can help me out."
Our Response
Good
question, and we'll be glad to help you out. Buy-and-hold
investing is basically the investment strategy that a majority of
Americans use when they are investing. Like its name suggests, it's
when a person buys a stock and they intend to hold it for a while
without selling it, usually at least 1 year. But most buy-and-hold
investors hold their stocks for 5 or more years. In general,
it's a "stick with a good company" approach.
We really must
agree with your father and we encourage you to use this approach
when you invest. You're young so you really have no
need to risk all of your money in hopes of getting rich quickly.
Besides, if you invest with the idea that you just want to get rich
quickly in the stock market, you might as well just gamble your
money away.
It's a proven fact that investors who execute less
trades per year (meaning that they buy and sell stocks less often)
consistently outperform those that trade more frequently. While
this isn't always the case, it's still a good rule to go
by.
Another big advantage of holding your stocks longer
is that you pay less in taxes. It's probably something your
parents would be more concerned with because they are the custodians
on your account. But you can help them out by holding your stocks
for at least a year, thus paying the reduced capital gains tax.
Like we've said, we encourage you to take advantage
of this approach. Try not to get caught up in the "hype"
of daytrading and other risky investments and you'll have a
very good chance of retiring with a million dollars!
If you have any more questions, feel free to ask and
we'll try to help you out as much as we can.
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