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Finance Glossary

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Buy And Hold


Buy and Hold is a style of investing. Basically, you buy stocks and then hold them. Convoluted idea, we know.

Warren Buffett, the Big Cheese in the investing business, is a big believer in buy and hold. Stockbrokers are less excited about this strategy, because they make their money when people trade, sell, and buy stocks. If everyone held onto stocks, stockbrokers might make less and might have to wear last year's Tom Ford designs. Tragic. 

To be successful at the buy and hold strategy, you will generally focus on putting just a few companies in your investment portfolio—fewer than 12 for most people. Then you avoid selling or trading those shares. To make money, though, you need to choose the "right" shares, and this is where things get tricky. What sort of business is around and profitable forever? Google and Apple might seem like sure bets now, but what happens 30 years (or more) down the line? Warren Buffet and others have found success by investing in things that people "always" buy—like Coca Cola. 

One of the big advantages of the buy and hold strategy is that it gives stocks lots of time to grow in value. Another big plus is that you don't realize gains, which means you don't have to pay capital gains taxes to the IRS. The big drawback is that your stock portfolio is going to go through lots of ups and downs, which will seem extra scary because you only have a limited number of stocks. When it all tanks, you won't be selling. You'll just be sweating it out, hoping that prices head back up. If you need the money in the short term and your portfolio doesn't recover in time, you might panic. This is really a strategy for the young or youngish who are thinking about stashing money away for retirement or even their kids.