Buy and hold investing is a long-term investment strategy where an investor buys a stock or other securities with the intention of holding them for an extended period, usually several years or more. The idea behind buy and hold investing is to identify quality companies with strong fundamentals, such as consistent earnings growth, high return on equity, and low debt-to-equity ratios, and then hold those companies for the long term in the expectation that they will continue to perform well over time. This strategy also prevents novice investors from falling into a frequent error of trying to “time the market”.
Benefits of Buy and Hold Investing
There are many benefits to the buy and hold strategy. One of the biggest benefits is that it can help investors avoid the short-term volatility of the stock market.
By holding onto stocks for the long-term, investors can ride out short-term market fluctuations and focus on the long-term growth potential of their investments.
Keeps Costs Down
Another benefit is that it can help investors save money on trading costs, as they don’t have to constantly buy and sell stocks.
Example of Buy and Hold Investing
An example of buy and hold investing is investing in a well-established company like Coca-Cola, which has consistently shown steady growth and has a strong brand name. This company has been around for over a century and has a track record of paying dividends to its shareholders, which makes it a good choice for a long-term investment. Coca-Cola stock as of 2023 is up 5,600%, this number obviously speaks for itself.
Does Buy and Hold Investing Still Work in 2023?
The short answer is, yes. The buy and hold investing strategy has been around for decades and is still considered a viable investment strategy. Buy and Hold is an example of risk management, which we talk about on the Financial Star, and that in itself is a great way to protect yourself from economic downturns. Data that points towards the buy and hold strategy not being dead can be found here.
Popular Buy and Hold Stocks
These are stocks of well-established companies with a long history of momentum and consistent profits. Examples include Coca-Cola, Procter & Gamble, and Johnson & Johnson.
These are stocks of companies that consistently pay dividends to their shareholders. Examples include utility companies, such as Consolidated Edison, and consumer goods companies, such as PepsiCo.
These are stocks of companies that are expected to grow at a faster rate than the overall market. Examples include technology companies, such as Apple and Amazon, and healthcare companies, such as Biogen and Gilead Sciences.
These are funds that track the performance of a particular stock market index, such as the S&P 500. They are considered a low-cost, diversified way to gain broad exposure to the stock market and can be a good option for buy and hold investors.
The Verdict on Buy and Hold
Buy and hold investing is a long-term investment strategy that can provide many benefits for investors. By identifying companies with strong fundamentals and holding onto those stocks for the long-term, investors can avoid the short-term volatility of the stock market and focus on the long-term growth potential of their investments. However, it’s important to do thorough research and be aware of the negatives associated with this strategy.