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How Do You Choose an Investment to Buy and Hold?
The richest people in the world started successful companies or bought into them. And these people retain ownership over the years. You may be too late to found Microsoft, Walmart, Amazon.com, or Berkshire Hathaway but you can follow the examples of these folks. Buy and hold value investing, when you choose the right investments, results in profits that continue for years and years. Why does this approach work? And, how to do you choose an investment to buy and hold?
How Do You Choose an Investment to Buy and Hold: Why Does This Work?
We like the Warren Buffett quote that the first rule of investing is not to lose money and the second rule is to not forget the first rule. We have written recently about the importance of not losing money when investing and how you have to increase your rate of return on an investment to recoup losses and get back on track after a year or two of losses. Likewise we wrote about how to invest without losing any money by focusing on bonds held to maturity. Although you can make a lot of money in a bull market, too many investors stay with volatile investments too long because they are unable to profitably time an investment cycle. Why a successful buy and hold investment works is because you do not waste money on repeatedly buying and selling and incurring excessive overhead that eats away at your gains. And, a solid long term investment provides appreciation as well as dividends. The long term in this case is ten years or more, which is enough time to average out the gains and losses of an investment cycle.