The phrase “buy and hold” makes reference to a strategy of passive investments seen when an individual will purchase stocks intending to keep (“hold”) them for an extended period of time, no matter what types of changes are seen in the market. When an investor chooses to implement a buy and hold strategy for his or her investments, he or she will actively select the stocks involved. However, once the portfolio is selected, the investor will leave it alone. These investors are not intending to follow any of the short term stock price movements, or worry about any of the market indicators. They are, essentially, in it for the long haul!
The strategy of buy and hold often outperforms other approaches in the long term, because of the standard accepted investing concept that shows that over a lengthy time period, these equities can be expected to yield a higher rate of return than the other types of assets including bonds.
Regardless of this fact, however, debate still exists about whether or not the buy and hold strategy is a better option than active investing. The truth is that both approaches, that of the active investors and the investors who choose to buy and hold, have some validity to their arguments.
One good thing about the buy and hold strategy, however, is that there are clear tax benefits. This is because of the fact that long term investments will usually be taxed at a lower rate than investments made over a shorter term.
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