Maybe you’ve heard the expression "buy and hold" before, but what does it mean? Basically, "buy and hold" is a strategy for long-term investing that consists of buying securities and holding on to them regardless of fluctuations in the market. Famous investors who “buy and hold” include names like Warren Buffet, for instance.
Below are three complementary investment strategies for long-term investors who plan on holding on to their stocks.
Dividends are a share of the profits that a company makes. Investing in stocks that pay dividends can be very good for long-term investors because it provides the opportunity to earn passive income from holding on to stocks in addition to the potential growth in portfolio value from asset appreciation (have in mind, however, that asset appreciation is not guaranteed and that investing in stocks implies inherent risk due factors such as market volatility, for instance).
A common strategy used by long-term investors is "averaging down" or "buying on dips". Basically, this consists of reducing the average cost of their investment in a stock they own by buying more of that stock at a cheaper price. This tends to increase the investor's returns if the stock's price rises.
The stock price may not rise or take a long time to do so, however. Because of this, averaging down isn't always an appropriate strategy and may not fit your investment objectives
Portfolio diversification is generally good for reducing unsystematic risk (risk that is specific to an asset or industry, for example). The idea here is the same as the old adage “don’t put your eggs all in one basket.” - by spreading your investments across different assets, geographies and industries, you tend to reduce your portfolio’s volatility.
Diversification does not guarantee investors will not lose money and this kind of investment strategy doesn’t make portfolios immune to risk, but diversifying your investments can be a good idea if you plan to hold on to them for the long run.
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