Why Buy-and-Hold is a Good Investment Strategy

By: Martin Lukac
Submitted: 2007-01-17 16:17:39
Print this article | Tell a friend | For publisher | Social Bookmarking
Rating:
 

Investment analysts say that buy-and-hold is the best investment strategy for the average consumer. But do you really understand why?

After all, the idea of a fast dollar on a stock is appealing. Buy low and sell high. Do this enough and you should come out on top, right?

Well, not exactly. Timing the market is almost impossible to succeed at. Eventually, you will lose. There are some that win using market timing, but you have a good chance that it won't be you.

A study by the Financial Analyst Journal compared the results between market timing and buy-and-hold strategies. The authors looked at data from 1929 to 1999. They looked at all six major US asset classes to see if market timing is effective when compared to buy-and-hold investing.

The study looked at several different market timing methods. And what they found was that sometimes it does work. Two people out of every 1,000 will come out on top with market timing.

Ninety-eight percent of buy-and-hold investors will come out on top.

The trick to making money in stocks is not really found in buying and selling. It is found in investing for the long term. Do you know what your chances are in making money on a stock. You have a 70% chance that an investment in stocks will make money in any given year. If you leave your money in for the long run, you have a better chance of coming out on top.

However, I'm not saying invest and forget. You need to know why you invested in the first place. Before you invest, know what your objectives are. You need to make sure that your investments are goal orientated. You sell investments that become inappropriate for your portfolio and goals and buy ones that fit in. This is buy-and-hold in action.

If you want to protect an investment, don't look at the individual stock price. Set yourself out points on the high and low side. You sell if it reaches this high or if it goes this low. If you don't set these guidelines and realize a loss, what are you going to do? Do you wait it out or take the loss?

You start over with the money you have right now and choose a new investment. This time you will set yourself out points. There is nothing you can do about the money you have lost, but you can prevent losing even more.

Don't hold onto stocks just to be stubborn. Realize when you made a mistake and start over. Change what you are doing so that you don't return to this place again. Set goals. Know why you are investing. Know your top price and your low price. And don't try to time the market, you have a 99.8% chance it won't work.

Martin Lukac http://www.MartinLukac.com, represents http://www.RateEmpire.com, an Internet consumer banking marketplace. RateEmpire.com is a destination site of personal finance, investing, taxes and mortgage rates. RateEmpire.com provides mortgage guides and financial rates and information. RateEmpire.com also operates a financial portal #1 American Financial, found at http://www.1AmericanFinancial.com.

Article source: Expert Articles

Most Recent Articles in Stocks Mutual Funds category

  • So You Really Want To Trade Online - By: Terry Detty
    This is a good overview for those of you who are thinking about testing the online trading waters.
  • How To Learn Short Selling With TIM - By: Terry Detty
    This interesting phenomenon that is called short selling is not something that every American believes that they should be doing.
  • Carbon Emission Trading, The Basics Explained - By: Dwayne Strocen
    The Kyoto Protocol of 1997 was signed by 38 signatory countries to address the issues of greenhouse gasses and resulting climate change issues. The following article will provide an understanding of trading greenhouse gas emissions.
  • Using Technical Analysis To Manage Risk And Maintain Top Quartile Performance - By: Dwayne Strocen
    To manage an effective risk management solution requires more than the calculation of VaR. Ultimately a successful risk management program requires the execution of an effective hedge. Technical analysis is a vital element of this strategy.
  • To Sell a Stock or Hold--When Is it Time? - By: Dr. Winton Felt
    Should you use the strategy of the long-term buy-and-hold investor or the short-term sell tactics of the trader in order to lock in small gains? Let us look at a few alternatives and possibly a strategy.
  • The Probability of a Stop Loss Being Triggered - By: Dr. Winton Felt
    Sometimes there are no obvious regions of price support that can be used as a reference for placing a stop loss. However, by using a volatility-based stop loss, you can set your stop so that it is statistically improbable that it will be triggered by a stock's normal fluctuation within a given holding period. This can give a stock enough "wiggle room" to continue its climb without a high risk of a premature sale because of a non-significant lurch of the stock.
  • Trading Veteran Reveals Must Have Hints and Tips on Trading that Every Trader Should Know - By: Philip Birchley
    Your trading system is a set of rules that you have built up that should be met before you enter a trade. The more ways that a trade is confirmed- the better and the more money you're likely to make.You might wait for a certain pattern to emerge on the charts that indicates that you should trade- so you might find a buy signal for example.
  • Should You Step into Foot Locker? - By: Dennis Biray
    With the NBA and other sport seasons flaring up this autumn, you may be wondering if now is the perfect opportunity to purchase shares of Foot Locker (FL), especially since they will be releasing earnings shortly (November 19, 2006). While such may be said as a good deduction, there are other, more profound reasons and answers to this question which, may, unfortunately, delay or even abort your decision to carry on your purchasing intentions. While all the economic and fundamental analysis may signal a strong run for this company, the technical analysis side of these indicators weighs much more heavily in a stock like Foot Locker.
  • 7 Stock Market Tips You Can't Live Without - By: Joseph Harris
    Every day there are a dozen new HOT stock market tips that guarantee your financial success. Every day there are hundreds if not thousands of people that jump on the bandwagon, and every day, each of those people are disappointed.When it comes to popular stock market tips, there is no golden ticket to striking it rich.
  • The Basics of Investing in Stocks and Shares - By: Joseph Kenny
    Stocks can be considered a tool for building wealth, as they are a part of almost every investment portfolio. They represent the ownership of a company and are bought in the form of shares. Shares refer to the stock of a particular company.