Buy and Hold: Is it dangerous?

“Buy and Hold” is a popular statement in the investment world. This means holding an investment for a long time and not worrying about what is going on now because investments typically go up. Most of us realize that such blanket statements can be dangerous. This one could be as dangerous as any when it comes to investing. Therefore, the flip side of the “Buy and Hold” coin is affectionately called “Buy and Hope”.

From past results in specific time periods, Buy and Hold seemingly looks like it could work. An investment could legally show that over the past 100 years, the return on investment has been seven percent. It might also 10 years at eight percent, or five years at four percent. The timeframe of return is not the issue; it’s the fact that it’s an irrelevant look into the past.

It is true that numbers don’t lie, but the person producing the numbers just might. For example, a person with an interest or financial gain in continued profits from an investor sticking with a failing investment vehicle may use the Buy and Hold mentality. “It will come back” and “You’re in it for the long term” are common phrases passed around. In investing, looking at past performance is helpful. More vital information is why an investment would continue to grow in the future or, more importantly, to not lose. This is why Buy and Hold does not work as a blanket statement.

It’s not normal to invest a portfolio that is highly susceptible to market fluctuations of any investment. Historically, the norm is possibly utilizing a small portion of a portfolio to speculate. Investors have relied on interest payments and return of principal backed by the claims-paying ability of the person or entity as the primary means for investment growth. This could have been through loans, financial institutions or holding bonds. This focuses less on market fluctuations and past results, and more on the ability to return in the future.

Interest rates have fallen, seemingly forcing investors to speculate more. But intentional investors know that there is always a market for profit in any market condition. They don’t have to risk hoping an investment does not crumble (or comes back if it does). This is a key component of Preventative Wealth Care, which prevents problems in a portfolio before they happen rather than treat them when Buy and Hold doesn’t work.

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