Most investors observe either an active or a passive investment strategy. Active investors buy and sell equities based on market fluctuations while passive investors often observe a "wait and see" philosophy.
The latter approach to investing includes the "buy and hold" strategy. The investor purchases equities, then holds on to them as they ride out the peaks and troughs of the stock market.
The "buy and hold" strategy imposes less stress on the investor because he or she doesn't constantly buy and sell investments in an attempt to game the system. Instead, the investor makes considered purchases and holds on to them for as long as possible.
Buying and holding stocks mimics other, less conventional, investment vehicles. Collectors, for example, purchase rare objects and keep them in a vault until they reach an attractive value on the open market.
Although they vary depending on the situation and the specific investment, taxes typically increase with short-sale stocks. When investors hold onto stocks for a longer period of time - typically 12 months - they incur fewer tax penalties.
Stocks, bonds, and other investment vehicles gain and lose value based on market conditions. The rapid fluctuations inherent to investing sometimes inspire consumers to sell too quickly.
A "buy and hold" strategy forces investors to ride out the market dips. While some investments never recover from a serious hit, most eventually hit a low point, then begin the upward climb once again.
Many different investments benefit from the "buy and hold" strategy, from mutual funds to real estate. Sign up for Mint to learn about investment opportunities and how to maximize them for the greatest rewards.