By now, you know all about buy and hold investing strategies but you may still be uncertain if this is the investment strategy that is going to work for you. The best way to figure these things out is to make an informed decision based on the pros and cons of this type of investment. It can be very tempting to dip your toes into the stock market and come back with a big return, but does the slow and steady approach of buy and hold really live up to its reputation? Here is a look at the pros and cons of the buy and hold strategy.
The biggest pro that you can find with this type of strategy is simply because it works. You will find exponential gains on your investment when you take a buy and hold approach to your investment. In fact, you may recognize the name of one of the biggest proponents of this: Warren Buffett. This is how the famed investor made his fortune, so you know that when you do this properly you will find a substantial profit. By some estimates, this method ends up outperforming standard trading methods by around 86%.
Another benefit is that you will save money using this method. This happens on a couple of different points. One is because since you are sticking with certain stocks for a longer period of time, you are not paying as much in the transaction fees from buying or selling stocks. It is also cheaper because you will have to ultimately pay less in taxes. When these stocks are cashed out after a year or more, you will pay less in capital gains tax due to a more favorable rate.
One of the biggest cons to this is that your money is tied up in the stock market in order for you to get the most money out of your investments. You will need a great deal of patience and self-discipline to not pull out of the market anytime things look like they getting a little risky. To this point, buy and hold strategies often also carry a bit more of a risk to them because you cannot touch them for at least a year or two if you are going to earn any profits. If the market crashes during this holding period, you lose everything.
Buy and holding investment strategies are extremely popular because they are one of the most proven ways to turn a profit when dealing with stocks. You still need to compile a lot of data to ensure that you are getting the right stocks, but you will not have to worry about the daily activities of these stocks because you are planning for a long-term gain rather than a short-term take. If you do decide to go with this strategy for your investments, you should be sure to have a risk management strategy in place for you to minimize any problems that may come up.