One of the main keys to successful investing is strategy. In the financial world, there are various approaches and strategies for handling your money, and it’s always a good idea to research them to find out whether they could be useful to you.
Over the next three weeks, I will explain the nature of different investment strategies and how they work. Of course, nothing is foolproof, as every investor’s circumstances are different. Before you decide on an investment strategy, you and your financial planner should look at your specific situation and goals and find out what would work best for you.
The buy and hold approach
Simply put, this practice encourages a person to buy quality investments and hold on to them. It is not designed for people who want to profit from a few points and then sell, nor is it suggested for those who can’t bear to see their holdings experience a loss. Basically, it works best for purchasers who carefully research and determine that the companies they are buying should do well because they are well run, well funded, and well placed in the business sectors in which they operate.
A benefit of this investing strategy is that by accumulating and holding onto a sound portfolio, the investor minimizes transaction costs and may reduce the capital gains taxes caused by frequent trading. Should the positive factors for owning specific stocks change – as determined by frequent monitoring of the holdings – the investor should certainly consider selling. But if the company’s fundamentals and the reasons you bought the stock remain valid, don’t sell. The difficulty in the buy-and-hold strategy is that at times it’s tempting to sell whether to actualize a profit or to prevent further loss. However, pros such as Warren Buffet, Peter Lynch, and Charles Brandes have demonstrated that the buy-and-hold approach has great merit. They have created billions of dollars of wealth for themselves and for their shareholders by holding their investments for the long term.
Next week, I’ll be explaining the strategy of dollar-cost averaging
Douglas Goldstein, CFP®, investment advisor, is the co-author with Grandmaster Susan Polgar of Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing.
Douglas Goldstein, CFP®, GFP®, is the director of Profile Investment Services, Ltd. www.profile-financial.com. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation on how to set up your American assets to meet your financial goals. Securities offered through Portfolio Resources Group, Inc. Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates. Neither PRG nor its affiliates give tax or legal advice.
Published November 3, 2014.