Buy and Hold Investing

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!