Buy and Hold

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Buy and Hold

Read this section twice. Buy and hold is a wonderful strategy for any newcomer to the market and is equally attractive to investors of any experience level. Basically, buy and hold works like this: Since the inception of stock markets, the value of the stocks being traded has eventually risen almost without exception. This passive strategy, buy and hold, works on the principle that if you purchase a stock and let it sit where it is long enough, you will eventually realize a profit. Whether that means 5, 10, or 20 years is uncertain , but remembering that your investments are part of a larger goal, it's pretty certain you'll see a profit before your dream becomes accessible and you are therefore ready to sell your shares.

Plain English

Buy and hold is an investment strategy whereby an investor purchases a stock and leaves it alone. Buy and hold usually implies that dividends will be reinvested in subsequent purchases of the stock.


For a buy and hold strategy, you would want to consider stock in companies that have the potential to be around for the long term . Consider blue chip stocks or stocks with good growth potential to achieve this. In addition, instead of collecting dividends, newer investors should seriously consider reinvesting their dividends into subsequent stock purchases. Many companies will execute these subsequent purchases without adding sales loads, making the investment even better. In addition, by negating broker fees and allowing compound interest to perform its magic on the initial investment and its subsequent dividend reinvestments, even the most novice investor is better placed to realize a profit.

Finally, the most important benefit of the buy and hold strategy is almost certainly not having to spend an inordinate amount of time researching and following other investments. The buy and hold strategy is often referred to as the buy and forget it strategy for that very reason. As a new investor, you will have your hands full becoming familiar with the entirety of the market. Rather than make several different investments over time, you are bound to do better by thoroughly researching one investment and "letting it ride." Your broker will hate you because his or her commission is based on the number of total trades you perform, but your banker is going to love you as you keep those brokerage fees in your own account in the bank.

TIP

The magic of compound interest works on the principle that your subsequent profits are reinvested to later increase the amount of your interest. It's a circular phenomenon , but it really works as demonstrated in the table.


Table  $10,000 Investment Growth Utilizing Compound Interest
Interest Rate 5 Years 10 Years 15 years 20 Years 25 Years
5% $12,763 $16,289 $20,790 $26,533 $33,864
8% $14,693 $21,589 $31,722 $46,610 $68,485
10% $16,105 $25,937 $41,772 $96,463 $170,000
12% $17,623 $31,058 $54,736 $96,463 $170,000
14% $19,254 $37,379 $71,379 $137,435 $263,619
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Stock Market Investing 10 Minute Guide
Stock Market Investing 10 Minute Guide
ISBN: 0028636104
EAN: 2147483647
Year: 2000
Pages: 130
Authors: Alex Saenz

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