Buy and Hold

A long-term passive investment strategy of purchasing securities and holding them through market cycles rather than trading based on short-term price movements.

Buy and hold is the investment approach advocated by most financial academics and practitioners for most investors. It rests on several empirical foundations: markets trend upward over long periods (reflecting economic growth and corporate profit increases), transaction costs and taxes erode active trading returns, timing the market consistently is extremely difficult, and the best trading days are unpredictable and often occur during periods of maximum fear.

The strategy minimizes costs — low turnover means fewer commissions, bid-ask spreads, and taxable events. It also sidesteps behavioral errors: investors who trade frequently tend to buy high and sell low, driven by fear and greed. Studies show that the average mutual fund investor significantly underperforms the funds they hold because they chase returns, buying after strong performance and selling after declines.

Buy and hold does not mean "never review" or "set and forget forever." Periodic rebalancing (restoring target asset allocation after markets have shifted) and reassessment of holdings is still appropriate. The strategy also requires genuine psychological fortitude — holding through 40–50% bear markets without panicking is easy to advocate in theory and hard to execute in practice.

This definition is for informational and educational purposes only. Nothing on Finance Compass constitutes financial, investment, or trading advice. Always conduct your own research and consult a qualified professional before making financial decisions.