401k Investing: Buy and Hold Strategies

When dealing with 401k investing, there are many different strategies that you could choose to employ. One of the most time-tested investment methods is the buy and hold strategy. Here are a few things to consider about using buy and hold strategies with your 401k account.

Buy and Hold Method

There are many different variations to this type of method. However, with the buy-and-hold strategy, you will be purchasing securities and holding them for the long-term. With this method, you try to choose securities that you believe will be around for the long-term. You are not concerned with small price fluctuations with the securities. This method is based on the historical performance of the financial markets. For example, if you look at the entire history of the stock market, you will see that it continues to increase in value over time. Even though there are down periods in the market, eventually the market always rebounds. Therefore, with this strategy, you are simply trying to get as many shares as you possibly can and hold onto them.

Choosing Securities

When using this type of investment strategy, you will want to take great care in selecting the securities that you invest in. You could potentially invest in bonds, stocks, or mutual funds with this strategy. If you invest in bonds, you will be able to receive a regular interest payment every month. Investing in bonds can provide you with a very safe form of investment and a predictable rate of return. However, most people that utilize the strategy also like to invest in stocks. Over the long-term, stocks will appreciate much more than bonds or any other type of security. If you choose the right stock, your initial investment could be doubled or tripled without any problem. Therefore, if you are talking about a long time period, you should consider investing in stocks with this method.

When you choose the stocks that you will invest in, you should make sure that you are investing in only the best companies in the market. If you invest in relatively unknown companies, they may not be around by the time you are ready to retire. Therefore, when utilizing this strategy it is typically better to invest in companies that most people expect to be around for the long-term.

Dollar Cost Averaging

One of the most popular forms of buy and hold strategies is dollar cost averaging. With this strategy, you will decide to invest a fixed amount of money on a regular interval. For example, you might decide to invest $200 every month into a particular security. When the price of the security is low, you will be purchasing more shares. When the price is high, you will be purchasing fewer shares. This strategy will help you to eliminate timing concerns about when to purchase a particular security. Over the long-term, this strategy has been proven to be effective.

blog comments powered by Disqus