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Lesson 13. Choosing a Strategy > Buy and Hold - Pg. 76

Choosing a Strategy 76 Buy and Hold Read this section twice. Buy and hold is a wonderful strategy for any newcomer to the market and is equally attractive to investors of any experience level. Basically, buy and hold works like this: Since the inception of stock markets, the value of the stocks being traded has eventually risen almost without exception. This passive strategy, buy and hold, works on the principle that if you purchase a stock and let it sit where it is long enough, you will eventually realize a profit. Whether that means 5, 10, or 20 years is uncertain, but remembering that your investments are part of a larger goal, it's pretty certain you'll see a profit before your dream becomes accessible and you are therefore ready to sell your shares. Plain English Buy and hold is an investment strategy whereby an investor purchases a stock and leaves it alone. Buy and hold usually implies that dividends will be reinvested in subsequent pur- chases of the stock. For a buy and hold strategy, you would want to consider stock in companies that have the potential to be around for the long term. Consider blue chip stocks or stocks with good growth potential to achieve this. In addition, instead of collecting dividends, newer investors should seriously consider reinvesting their dividends into subsequent stock purchases. Many companies will execute these subsequent purchases without adding sales loads, making the investment even better. In addition, by negating broker fees and allowing compound interest to perform its magic on the initial investment and its subsequent dividend reinvestments, even the most novice investor is better placed to realize a profit. Finally, the most important benefit of the buy and hold strategy is almost certainly not having to spend an inordinate amount of time researching and following other investments. The buy and hold