Glossary · Investing and personal finance
Buy and hold
Buy and hold is investing for the long run: buy broad investments and keep them for many years, through ups and downs, instead of trading in and out.
Also called: buy-and-hold investing, long-term investing, time in the market
Share of all 1-year periods since 1871, dividends reinvested.
After inflation: 11%.
After inflation: under 1%.
In plain words
Plant a tree and dig it up every week to check the roots, and it will never grow. Buy and hold is the investing version of leaving the tree alone: buy a broad set of investments, often an index fund, and keep it for decades, through crashes and booms.
It rests on two observations. Over long periods, stock markets have risen far more than they have fallen. And nobody reliably predicts the short swings, so trading in and out mostly adds costs, taxes and mistakes.
The longer US stocks were held, the less often they lost money. Over single years since 1871, with dividends, they lost money 27% of the time. They lost money in 3% of 10-year periods and in 0% of 20-year periods.
Example
The worst crash in the data
Suppose you bought US stocks at the top in Sep 1929, just before the Great Crash.
- By Jun 1932 the investment, dividends included, had lost 82% of its value.
- Holding on, with dividends reinvested, you were back where you started in Jan 1945: 15 years after buying.
- Someone who sold at the bottom locked in the loss and missed the recovery.
Buy and hold survived even this, but it took nerves and time.
One level deeper
Buy and hold does not mean buy and forget. Holders still choose an asset allocation, rebalance now and then, and keep costs low. It also needs diversified holdings: a single company can fall and never come back, as owners of Enron or Lehman Brothers found out.
Its enemies are behavioral. Studies of fund investors, such as Morningstar’s yearly “Mind the Gap”, find that the average investor earns less than the funds they own, because money flows in after rises and out after falls.
Holding long did not remove every risk. After inflation, US stocks lost value in 11% of 10-year periods and in under 1% of 20-year periods.
How often US stocks lost money, by how long you held
Every start month since 1871, with dividends reinvested, before inflation. Over one year losses were common; over 15 years and more they were rare or absent.
The numbers behind the chart
| Value | |
|---|---|
| 1 year | 27.2% |
| 3 years | 15.1% |
| 5 years | 10.2% |
| 10 years | 2.9% |
| 15 years | 0.1% |
| 20 years | 0.0% |
Why it matters
It is cheap: fewer trades mean lower costs and, in taxable accounts, taxes deferred for years.
It is simple, and it protects investors from their own worst instincts in panics and manias.
It captures the long-run growth of companies, which is where most stock market returns have come from.
A common mistake
Myth: With buy and hold, you cannot lose money if you wait long enough.
In fact: Over 20-year periods since 1871, US stocks lost money in 0% of cases in dollars and in under 1% after inflation. But that is one country with one of the best records; Japan’s stock market took decades to get back to its 1989 peak. Waiting helps; it guarantees nothing.
Questions people ask
Does buy and hold still work?
It has worked for broad markets with long histories of growth, like the US, as long as investors held on through the falls. It is no guarantee: it depends on the market growing over your holding period, and on you not selling in a panic.
What is the difference between buy and hold and market timing?
Buy and hold stays invested all the time. Market timing tries to be out before falls and back in before rises; it needs two right calls each time, and missing a few of the best months costs a lot.
How long is long term?
There is no official line, but the data give a hint. Since 1871, US stocks lost money over 10% of 5-year periods, 3% of 10-year periods and 0% of 20-year periods. Many people treat 10 years or more as long term for stocks.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- S&P Composite price and total return since 1871, and US consumer prices: Robert J. Shiller, Online Data (shillerdata.com); total return with dividends reinvested monthly, calculated by BigCapital.
- This page explains a term. It is not investment advice.