Cents and Sensibility
Cents and Sensibility
Buy and hold. You won't see this phrase screaming out at you from the investment magazines or the multitudes of Web sites devoted to investing. But you will find those three little words in the vocabulary of most successful investors. The smart way to
buy and holdWhat, exactly, is a "buy and hold" philosophy? Perhaps it can best be understood by looking at what buy-and-hold investors do -- and what they don't do.
Buy-and-hold investors do:
>> Stick with a group of high-quality securities for the long term.
>> Sell these securities only when there is a good reason to do so.
For example, they may decide that a particular stock is no longer appropriate for their holdings, either because the company's management has changed or because consumer attitudes have moved away from the company's product. They may be entering the later years of their retirement and want to shift their portfolio toward more income-oriented investments. Or, there may be other reasons associated with the specific stock or the investor's objectives.
Buy-and-hold investors do not:
>> Worry about the short-terms ups and downs of the market.
>> Worry about what companies are the latest headline-grabbers.
Sounds good, right? Yes -- but buy-and-hold isn't as easy to follow as it sounds. It can be easy to panic when the market declines. When prices fall too far, some investors start selling shares. It also can be tempting to buy new stocks after a long period of market advances. But if you do, you're "buying high" -- in direct contradiction to the age-old investment advice of "buy low, sell high."
To be a successful buy-and-hold investor, you clearly need to avoid these mistakes. But how? Learn your risk tolerance and use it as a guiding principle in choosing investments. Also, spread spread your money among a variety of asset classes, such as stocks, bonds and government securities.
If you've chosen good stocks with strong fundamentals, capable management and solid business plans, your prospects for long-term success are good.
Guy Steele is a financial planner and head
of the Pali Palms office of Edward Jones. Send
planning and investing questions to him at 970
N. Kalaheo Ave., Suite C-210, Kailua, HI, 96734,
or by email at: gsteele2@pixi.com