Is Buy and Hold the Right Stock Market Strategy?

By Stock Research Pro • October 3rd, 2008

A buy and hold stock market strategy is a long-term investment strategy based on the concept that, over the long-run, financial markets give a good rate of return despite periods of volatility or decline.

The idea behind the buy and hold strategy is that, as the economy grows and expands over time, profits will grow, resulting in higher stock prices and increased dividends to investors. Supporting this is the fact that since 1926 stocks have averaged an 11.2% return annually, while government bonds averaged just over 5% for that same time period.

Periodic Review of Your Stock Portfolio

Utilizing this investment strategy doesn’t mean you buy and walk away without ever checking to see if your stocks are still sound investments. Regular scrutiny of company fundamentals, management changes, market developments, and valuation are called for to ensure that keeping the stock in your portfolio continues to make sense.

Maintained Fundamental Strength

Buy and hold investors believe that this stock market strategy can work if you’re buying solid companies with good earnings growth. These investors commonly rely on fundamental analysis of the company, such as its long-term growth strategy, the quality of its products, or its relationships with management when deciding whether to buy or sell the stock.

It’s worth noting that buy and hold is very advantageous as far as tax implications are concerned.

Opposition to Buy and Hold

Opponents to the buy and hold strategy recommend that you develop and adhere to a set of rules for determining when to sell with the belief that capital preservation should be the investor’s primary goal. These opponents, referencing long-term stock trends, argue that most stocks spend up to two-thirds of their time recovering from losses and that adopting an investor psychology that allows you to drop stocks as they become over-valued or (rightfully) fall out of favor will serve your portfolio better than a strict buy and hold strategy.


The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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