Finance

Buy and Hold: Learn this stock investment strategy

Among many investment strategies, buy and hold is one of the most famous ones. Take a look at how it works and if it fits you.

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That are some people that choose different things to look out for when searching for a nice stock. That are people who look for numbers and data, others that are more concerned about the company’s philosophy… The list goes on.

There is, however, a very important factor that we need to look out for when investing: our personality. It is true that some people can handle the market’s ups and downs with more calm and serenity than others.

So, today, we are going to be looking for an investment strategy that is perfect for those who may feel a little uncomfortable with the market’s movement in the short term: the Buy and Hold.

Tips on how to choose a stock that fits you

If are you looking for investing in a stock, but don't know how to choose the one that is perfect for you, check out this guide!

Definition

When holding securities for a long time, the buy-and-hold approach is adopted.

The trade-off for stability is that investors forgo the chance to profit from stock market volatility in the short term.

 Nevertheless, many investors feel that the long-term returns are ultimately more important, and are willing to accept the risks inherent in buy-and-hold investing.

This is a specially interesting investment for people who are not afraid to “forget” the asset for some time.

Like a plant, they understand that there are days it grows, days that perhaps an insect goes and eats some of its leaves, but in the long term he understands that given time, the plant might grow strong.

Let’s put this in an example: Imagine that you acquire an asset at US$ 10.00. In the time span of two days, the price of this stock fluctuated between US$ 8.00 and US$ 12.00, for whatever reason.

If you are the kind of person who is a little anxious, you will have a lot of problems seeing this market’s fluctuation, even if you understand the company inside out.

Therefore, you will end up selling this stock, you just can’t take it.

However, if you choose to buy the stock at US$10.00, and just keep looking if there will be no major shakedowns on the company. The short-term fluctuation is not a problem for you, so you keep on with your life.

Volatility does not bother you at all. That is basically the base of the buy and hold.

What are the pros of the strategy:

Cost savings:

One major justification for buy-and-hold is that it requires less frequent trading than other techniques because it may be held for longer periods of time. As a result, trading expenses are kept to a minimum, which can raise the portfolio’s overall net return.

Risk mitigation:

The strategy of passive investing lowers what is referred to as “management risk.” When someone actively manages their portfolio, they run this risk

Simplicity:

You study, you invest, and wait, there is the bread and butter of investing here.

What are the cons of this strategy?

Price risk:

There is never a guarantee that a price will return to a specific level; stock prices do rise and decrease. You might not consider price as much as other types of investors if you buy and hold. This may make you more susceptible to making costly stock purchases and making inexpensive stock sales.

Lack of adaptability:

No matter how the market changes, a perfect buy-and-hold strategy always buys and holds. That might cause losses in some circumstances. The Great Recession and the ensuing bear market are examples. Active traders made far more money than those who purchased and held during that period of stock market volatility.

Conclusion

There is no perfect investment tactic, there are some good and bad regardless of your choice.

What really matters is that we win some and lose some, we just need to make sure our wins are much higher than our losses, and we keep in the game.

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