Strategies - Buy and Hold

The Buy and Hold strategy is actually an extension of the Asset Allocation strategy. Once you have determined your optimal asset allocation you can elect to purchase a set of assets in each of your desired asset classes. Over time, the ratios will change as the value of each asset class changes. This is when you will need to determine whether you will change your allocations or you will re-adjust your portfolio to return to your original allocation structure.

The major benefit for this strategy is the minimization of the transaction costs that are associated with investing. An example of this strategy is the purchase of an Index Mutual Fund. These funds attempt to match the make up of an index, such as the S&P 500 Index. Because indexes are relatively stable, with regard to the stocks that make up the index, transaction costs and taxes are typically minimized.

Lately, many financial experts have been saying that this is generally a very bad strategy. The concept that a particular company will provide you with perpetual capital gains opportunities is rediculous as recent market turmoil indicates. A buy and hold strategy is fine -- as long as you monitor all of your holdings for future growth.