Frequent Trading vs. Buy-and-Hold
The temptation to frequently trade stock positions can be alluring to investors who see sensational news headlines about various companies and observe other individuals making the occasional large capital gain on a short-term position. This tendency is understandable, given that many endeavors in life require frequent effort and action to achieve success. Perhaps counterintuitively, however, studies show that the classic buy-and-hold strategy, on average, convincingly outperforms the approach of darting in-and-out of stocks in an attempt to lock in gains from short-term price movements. For instance, as noted in the article below, a recent study observed that a buy-and-hold strategy outperformed frequent trading by about 2.5% per year on average over a 30-year time period. Also, in addition to the superior returns, holding an investment for more than one year typically leads to a lower tax burden thanks to relatively favorable long-term capital gains tax rates. Rather than trying to time the short-term movements of individual stocks, investors can put their hard-earned money to work with a long-term investment strategy that enjoys the benefits of a globally diversified portfolio and appropriately incorporates objectives, time horizon, and risk tolerance.
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- Anthony Winkels is Managing Partner and Wealth Advisor at Fortis Wealth Management
