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Buy and hold investing has gone from the most popular strategy going to a fairly unpopular idea in the time span of just a few years. It is quite amazing that there could be such a quick turn in the span of just a few years, but that really is how the stock market works in today’s world. The modern economy causes the market to be more volatile than ever, which seems to have made investors invest in a different way. Let’s take a closer look at the pros and the cons of the buy and hold investing strategy.
Leads to Patience in the Market: One of the biggest problems for the average investor is that they simply aren’t patient enough when it comes to the stock market. In order to be successful, you must be able to ride out the rough periods of market turbulence. The investor who has a long-term approach often makes much more wise decisions than an investor who is looking to make a quick buck.
Compounding Returns and Dividends: The amazing power of compounding returns can propel a buy and hold portfolio over the long haul. In addition, dividend yields from major companies are well above the level of money market accounts now, which makes the dividend from a stock a terrific perk.
Is the Market Trustworthy?: I firmly believe the biggest reason the buy and hold strategy has lost popularity is because people are afraid of the stock market. After the flash crash and a number of corporate accounting scandals, I can’t blame people for worrying about their investments in the stock market.
Not Enough Homework Done: Many investors who use the buy and hold strategy fail to stay up to date with their investments. If you are investing in the market without the help of a professional this is a huge problem. Research and dedication to your investments is a must if you wish to succeed in the long run.
The Future of Buy and Hold Investing
As a financial professional, I have a hard time believing that buy and hold investing is truly dead. Of course investors’ faith in the market has been shaken, but I believe it will slowly return. It is my hope that buy and hold investing transforms into a more hands-on approach, so that investors will be better educated before making serious investment decisions. Buy and hold investing is still a powerful way to create wealth, but proper research and knowledge of your financial situation is critical to success.
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