As a passive investing style, the buy-and-hold strategy entails an investor holding stocks or securities such as mutual funds, index funds, or exchange-traded funds (ETFs) for a long period. The investor in this case is unphased by the volatility in the equity market.
The core idea behind the buy-and-hold strategy is to stay invested throughout market cycles, as even missing just a few of the best days may have a significant impact on long-term returns.
The buy-and-hold strategy is contrary to active investing in which an investor tries to beat the market through selling shares when stock prices are high and vice-versa.
However, despite experts favouring the buy-and-hold strategy, there are investors who may find it difficult to sit through a volatile market.
Considering the buy-and-hold strategy involves parking money in the market and not touching it for years, it does involve some opportunity cost.
A buy-and-hold strategy can be suitably implemented by identifying the investment goals. This will help in selecting suitable funds accordingly while keeping in line with the investment objectives.
Look out for appropriate funds after considering the long-term history of consistent performance. Gain from the benefit of rupee-cost averaging by investing regularly through the systematic investment plans (SIPs) mode.
Ideally, an investor should have in-depth insights into market trends, stock prices and industry conditions to make informed decisions. Otherwise, this strategy to turn out to be a costly affair.
The buy-and-hold strategy could be a bit tricky to implement because it does not involve timing for long-term success, but considering the amount of time for which an investor has to hold onto shares or securities.
Despite the buy-and-hold strategy involves holding stocks and securities on a long-term basis, it is important to monitor the investments to ensure they align with investment goals and risk appetite. Essentially, an annual review is necessary to ensure investments are well on track.
Rajiv is an independent editorial consultant for the last decade. Prior to this, he worked as a full-time journalist associated with various prominent print media houses. In his spare time, he loves to paint on canvas.