No investing strategy is right for everyone — but you can determine if a long-term, buy-and-hold stock investing strategy will work for you. Here are some of the questions you should consider:
How much time do you have to invest in your investments? Your time itself is an investment, since it can pay off later when your portfolio begins to bloom as a result of your efforts. If you’re just getting started in stocks, you can expect to spend some extra time up front on your investment education, as well as analyzing possible candidates for your portfolio. But once you get the hang of it, you won’t need to make an enormous time commitment. You typically need only a few hours each month to study and manage your portfolio.
How much do you have to start building a portfolio? The good thing about being a long-term stock investor is that you can start small, and build a portfolio of quality stocks over time. Plus, you can add small amounts each month and buy additional shares of stock, helping your portfolio to grow.
Can you identify quality growth companies for your portfolio? You can probably identify many of America’s prominent companies by name: McDonald’s, Pepsico, Colgate-Palmolive, Coca-Cola, Microsoft. It shouldn’t surprise you that over the years these companies have made some bucks for many shareholders.* You can reduce your risk by buying quality growth companies at good prices.
The majority of investors find that a growth and value strategy works well for them. By using dollar-based investing to purchase and hold stocks for the long-term, your portfolio can grow through the years.
Become a Disciplined Investor
Once you find your investing style, stick with it. Over time, you’ll develop your own set of criteria to pick stocks. If you try mixing approaches, you’ll just wind up diluting the effectiveness of your chosen strategy, thereby diminishing your returns.
Sometimes this means ignoring the talking heads on television, with their advice to "buy, sell, or hold" a particular stock. Just remember that these analysts aren’t managing your portfolio. They may have a very different outlook and time frame than you do, and their advice may not be suitable for your circumstances. You’ll have to learn to avoid the hype.
Sometimes this means remembering that you shouldn’t buy a stock just because you have a "good feeling" about the stock’s chances. You shouldn’t be an emotional investor, buying or selling on a whim or because of "gut instinct." The most successful investors are usually those who have a qualifying system that works — and stick to it.
*The named stocks are presented for purposes of the illustration only and should not be considered as recommendations or advice by ShareBuilder. Past performance is not a guarantee of future results.