Buy and hold is a passive investment strategy in which an investor buys and holds on to an asset class and holds through the long term no matter the changes in the prices. It applies to any asset class such as stocks, real estate, and cryptocurrency. It is one of the most lucrative strategies out there.
When I first started my investing journey, I played around with day trading individual stocks. It thought I had it made. The first trade I did, I made a cool $1,500 from a $5,000 investment. In a single day. It was Plug Power. Since then, I’ve been hooked. I thought I was a wizard.
We all know how this story ends. I end up losing thousands of dollars in the process. Thank goodness that that was during my college days and I didn’t have a lot of money to lose. Ever since I graduated college, I took advantage of the buy and hold strategy and kept my money in the S&P 500.
Every paycheck, I took advantage of the 401k that was offered and consistently invested my money into the markets. I’ve never sold the S&P 500 even once in the past six years of me working. That’s what allowed me to have a $250,000 tax advantaged account.
Buy and hold strategy is one of the most lucrative investing strategies out there. Best part is that you don’t have to do anything. All you have to do is sit there and let the market do its magic. No complications, no additional research, just click a few buttons and then you’re done.
What is Buy and Hold?
Buy and hold is an investment strategy that you hold onto an asset class no matter what happens. You don’t change the course with a turbulent market event such as the coronavirus. Or when Russia invaded Ukraine. You just silently and quietly buy stocks no matter what.
There were so many people who panic sold during the crash that happened when Russia invaded Ukraine. In times of turbulent market times like that, stocks just simply return to their rightful owners. It’s when the patient investors snap up shares from the impatient investors and they let time do their magic.
It doesn’t just have to be in the stock market. It can be in real estate as well. The selling costs of real estate is insanely high. You need to pay commission, broker fees, taxes, and the like. Therefore, most real estate investors are buy and hold investors as well.
It’s a much simpler and less complicated way to invest instead of buying and selling assets in and out. There’s no chance for human error if you just buy and hold and let it sit until eternity. The trick is to forget you even invested in the first place. These investors have a long dated history of beating out active investors.
It’s highly lucrative and profitable.
Is Buy and Hold Still a Good Strategy?
Many people may think, “yeah, that worked well when Warren Buffett was alive, but times have changed”. False! Warren Buffett famously said that investing $10,000 in the S&P 500 in 1942 would have turned into $51MM after 76 years. Yes, not everyone will live 76 years after investing $10,000.
However, that just highlights and demonstrates the power of buying and holding investments and assets. It as a good strategy decades ago, it is a good strategy today, and it will be a good strategy going forward. The amount of people trying to time the markets is too high.
The vast majority of investors are better off doing nothing with their investments. Doing nothing is better than doing a bad thing. Remember that the S&P 500 historically never returned a negative result over a 20-year period. Past results are not indicative of future results, yes.
However, it demonstrates the power of the buy and hold strategy. I personally do not like jumping in and out of stocks because it’s too much of a hassle. It has been quite lucrative over my six year investing journey and who knows just how much more lucrative it will be in the next 6 years.
It’s not an antiquated strategy that has very little chance of bearing fruit. It’s made so many people rich before and it’s making many people rich today. Therefore, it’s not a good idea to bet against a tried and true proven strategy. I personally am not.
How Can I Use Buy and Hold to Make Me Richer?
First way you can use buy and hold to make you richer is to SMASH that social share button and post to your favorite social media! Your friends could be day traders and need an article like this in their lives. We can all help each other.
So with that said, let’s go over the concrete ways it can make your richer!
1) Actually Use the Strategy
There’s no point in knowing about the buy and hold strategy if you don’t actually use the strategy. Implement it to your portfolio. This isn’t investment advice, this is just a suggestion. You can compare the results of buying and holding versus investments that you actively trade in order to gain an edge.
The difference in gains will be night and day. The strategy has been especially kind to investors in 2020 when the stock market crashed 30%+ in a matter of weeks. Imagine selling at the low point of 2020 only to see equity prices essentially double since then.
The Russian conflict will only look like a blip over the next 40 years and the coronavirus crash will look like so as well. The financial crisis of 2007-2009 already looks like a small blip. When you buy and hold, you don’t let fear dictate your wealth building choices but rather logic.
2) Forget About Your Investments
It’s a set it once and forget about it forever strategy. The best investors on Earth are dead investors. Why is that? They don’t have a chance to sell any of their portfolio! Think how interesting it is that alive investors cannot outperform dead ones.
Don’t remember that you even invested until some decades later. Then watch as you get pleasantly surprised decades later when the investments balloon into meaningful amounts. I made close to $80,000 through the buy and hold strategy in my 401k. That’s not an insignificant amount of money.
And by the way, it’s just getting started. I don’t know just how much more it’ll return in the next year and the next decade. If I just let my investments do its thing while I spend 100% of my after-tax money, then I’m completely OK. I will be able to retire a very wealthy person.
3) It’s When the Market Tests You That Matters
The biggest test I ever went through so far is the coronavirus crash and the Russian invasion that tested my mettle. The buy and hold strategy will test you so many times throughout your entire investing journey. In more ways than one and in differing degrees. That’s when you know what kind of investor you are.
Are you going to wilt under pressure or are you going to rise above and not let the wild and volatile swings not affect you. Part of being rich is knowing what not to do. And what not o do is let emotions affect your investing decisions and make decisions in the heat of the moment.
Making decisions in the heat of the moment doesn’t work in most aspects of our lives. Investing certainly falls under one of the categories. This is what’s going to make you the real money. Knowing that prices are bound to swing wildly yet deciding to let the market do its thing and not be bothered by it.
4) Use it for Many Asset Classes
The buy and hold strategy doesn’t just apply to stocks. One of my friends bought a $250,000 house in March 2020. The prices soared to $400,000 today. There’s no way that he will sell the asset. Real estate is one of those buy and hold asset classes that you shouldn’t do anything different with.
There’s a reason why it’s so common amongst the most successful investors around the world. It works. In the investing business, we call it “hoding”. Some asset classes are so high class that they don’t need to be bought and sold often. However, there are some that are not so high quality.
Pokemon cards are very volatile asset classes that it might not be in your best interest to buy and hold until eternity who knows what they will be worth 20 years from now. It can exactly be like beanie babies where the value drops 80%+ overnight. You just don’t know with unproven asset classes such as these.
Real World Buy and Hold Example
What better way to illustrate the buy and hold strategy than from the very person preaching the strategy in the first place? Me! When I first started out, I invested as much money as I could in the S&P 500 through my 401k. I maxed it out every full year that I worked.
I started with $18k one year, $18.5k the next year, and so forth. After maxing it out consistently over the past five full years I was able to, I amassed a whopping $225,000 401k balance. This is just in my 401k’s alone! Not including Roth IRAs nor HSAs. I contributed approximately $100,000 and had approximately $40,000 of matching.
The rest are all gains that I earned from just buying and holding the S&P 500. Absolutely zero complicated research that I did. All I did was watch my paycheck get automatically taken out by automatic contributions. Every two weeks, without fail. See how lucrative it is?
I plan to max out my 401k for many more years and I wouldn’t be surprised if I become a 401k millionaire in the next two decades. Time will certainly tell. The reason why I’m a huge proponent and advocate of the strategy is because it’s personally helped my financial life to the max.
This is an example that others could learn from and take the advice or choose not to. I know that I won’t deviate from the strategy just because I’ve seen how much opportunity cost there is from selling investments and trying to time the market. It’s not pretty. Many have tried and failed miserably.
Buy and Hold Versus Active Management
So then the question becomes how great buy and hold strategy is versus the active management strategy that people are touting. Many people are cursed with the overconfidence bias and think that they can easily beat the market. That’s just not true. Many people try and fail.
It’s wildly estimated that 95% of day traders lose money in the stock market. That’s a shocking statistic. That means you are 95% likely to lose money than you are to make money. Buy and hold investors haven’t lost money yet over a 20-year period had they just held the money and never sold.
That means day traders aren’t just losing out on potential gains they could’ve made by passively investing. They’re losing out on the time and the money it takes just to break even and get back to where they started. That is a shocking and staggering underperformance.
Take it from someone who tried to day trade their wealth to riches (me). It’s not a pretty sight and it doesn’t feel any better either. The one who thinks they can beat the market is the one who is cursed. There’s a small sliver of possibility they could but a large possibility that they won’t.
Don’t let the overconfidence bias take your investment strategy by storm. There’s a reason why there’s so many passive investors out in the market. It’s so lucrative that there’s no need to do any other complicated things. There’s no need to learn how to trade options. You just have to buy once and sit for eternity.
Buy and Hold is a Great Strategy
I can’t stress this enough. I’ve been a buy and hold investor for the past six years and I will continue to be a buy and hold investor for decades to come. There’s going to be hardship times such as when Russia invaded Ukraine. However, I believe we will come out stronger ahead afterwards.
We don’t get rich by saving our money, we get rich by investing our money. Therefore, if it literally dictates whether you become a millionaire or not, what’s wrong with going through a tried and true method? I’m fully convinced about the long term viability of the strategy and will continue to implement it going forward.
The best part about this passive investing strategy is that it frees your time up to do other projects. It’s hands free investing so you don’t have to research and keep up with the news. You can spend that time trying to figure out ways to generate additional income.
Let your money work hard to make you money while you figure out additional income sources to add to your arsenal. It can be in real estate, side hustles, Youtube, blogs, or anything of the kind. This is how you race past the competition. Focus on the things that matter and forget the things that don’t.
Investing is a very simple process and there’s no need to do anything silly like trying to time the market. While your competition is reading on news, figuring out the entry price point, and the like, you’re buying and holding. Researching additional ways to add more dollars to your wallet, separate from investing.
