Published - November 29, 2022 @ 1:00 PM (EET)
Though the goal of most investors is to buy low and sell high, also referred to as "trading," investing is widely a long-term game.
The buy-and-hold investment strategy involves keeping an investment over extended periods, anticipating the price will increase over time.
Historically, global stock market data has shown that if you had randomly picked one day between January 1971 and December 2021, you would have had a roughly 53% chance of making gains.
Therefore, whether you manage your own portfolio or work with a trusted broker or financial advisor, buy-and-hold investing is the best investment strategy for most people, even more so when investing for retirement or goals that are at least ten years ahead.
Here are some ways you can benefit from long-term investing and why it is one of the best ways to save for retirement:
1. Long-term investing is great for investors who inherently respond to market falls. A buy-and-hold strategy allows individuals to take the emotions out of the equation and instead focus on the long-term growth outlook of a business or the volatility of a new business model.
2. The argument for buy-and-hold investing is that a well-run company should increase in value. Investors who thus ride out the waves and noise of the market will be able to capture the gains in their portfolios and avoid missing out on the market's biggest days.
3. Buying stocks to hold for the long term allows you to enjoy your fair share of compound interest. With compound interest, the power of time is everything, so the sooner you start investing for retirement, the better.
4. Though market volatility can be intimidating, investments can grow regardless of fluctuations with history to back these claims up. The longer you remain invested, the more time your money could have to grow.
5. Over the past 35 years, the market has posted a positive annual return in nearly 8 out of every ten years, which shows that the market has been able to recover from declines and still provide investors with a positive long-term investment.
6. Investing in the stock market early can lead to more dividends, and while these payouts might seem small, more than 40% of the historical gains from the S&P 500 came from dividends.
7. Keeping your stocks in your portfolio is a more cost-effective strategy than regular buying and selling because the longer you buy and hold, the fewer fees you'll have to pay. Remember, short-term capital gains increase your tax liabilities, which means more money out of your pocket.
8. To stay invested does not require extraordinary trading skills or exceptional financial know-how. Once you have established your investing goals and time horizon, you can simply choose an investment strategy and stick with it.
CONCLUSION
In general, long-term stock investing is about focusing on financial or retirement goals and ignoring the noise of the markets and the media which covers them.
Buy and hold remains the preferred strategy and is proven in the market, while some of its perks include higher returns, tax savings, and lower costs.
