how buy and hold works
conventional investing wisdom shows that with a long time horizon equities render a higher return than other asset classes such as bonds there is however some debate over whether a buy and hold strategy is superior to an active investing strategy both sides have valid arguments but a buy and hold strategy has tax benefits because the investor can defer capital gains taxes on long term investments to purchase shares of common stock is to take ownership of a company ownership has its privileges which include voting rights and a stake in corporate profits as the company grows shareholders function as direct decision makers with their number of votes being equal to the number of shares they hold shareholders vote on critical issues such as mergers and acquisitions and elect directors to the board activist investors with substantial holdings wield considerable influence over management often seeking to gain representation on the board of directors recognizing that change takes time committed shareholders adopt buy and hold strategies rather than treating ownership as a short term vehicle for profit in the mode of a day trader buy and hold investors keep shares through the bull and bear markets equity owners thus bear the ultimate risk of failure or the supreme reward of substantial appreciation buy and hold is often also called position trading active versus passive managementthe debate over passive versus active management styles persists a buy and hold investor reflects a passive management style in the case of a mutual fund or exchange traded fund indexed portfolios mirror that of a common benchmark as indices rebalance and weightings increase relative to market capitalization turnover rates which are often under 5 among passive funds such as an s p 500 index portfolio remain ultra low as managers focus on issues across the broad market stocks are held for as long as they remain components of the indices even though you hold the securities you buy for the long term you still need to consider price fluctuations and pay attention to their performance real world example of buy and holdan example of a buy and hold strategy that would have worked quite well is the purchase of apple aapl stock if an investor had bought 100 shares at its closing price of 18 per share in january 2008 and held onto the stock until january 2019 the stock climbed to 157 per share that s a return of nearly 900 in just over 10 years those arguing against using a long term strategy claim that investors forsake gains by riding out volatility rather than locking in gains and miss out on timing the market there are some professionals who regularly succeed with short term trading strategies but the risks can be higher investment success is also realized by loyalty commitment to ownership and the simple pursuit of standing pat or not moving from a chosen position 