Buy and hold is an investment strategy designed for long term investing. The premise behind buy and hold is that in the long-term, stock prices will increase. Rather than get caught up in the game of buying and selling shares at the right time to make the most money, proponents of buy and hold simply buy well priced stock in companies that demonstrate good management and growth potential and then hold that stock until such time as they are ready to cash out.
The stocks are held regardless of fluctuations in the market, business cycles, and other economic events and the real value of buy and hold investor portfolios can fluctuate quite dramatically. The buy and hold strategy reduces the transaction fees involved with buying and selling shares and it also tends to decrease or defer taxes paid on capital gains. However, during economic downturns, when the investor sees their capital investment decreasing dramatically, buy and hold can really test an investor’s fortitude.
Related Terms: Asset Allocation – Portfolio Diversification – Dollar Cost Averaging – Individual Retirement Account