So, what's the
secret behind "Buy and Hold" investing, anyway?
What magic makes it work? Actually, it's not magic, but two
well-known and very powerful financial concepts working in
combination:
1. Compounding — Reinvesting a stock's dividends buys you more shares which can grow your total investment value at a faster pace. (See chart below.)
Most of the companies offered through BUYandHOLD pay dividends (typically on a quarterly basis). You can elect to have your cash dividends automatically reinvested to buy more shares of the same stock at no additional cost to you. These new shares may earn future dividends, and the cycle will continue again and again. Before you know it, you will have more shares working for you.
The charts below demonstrate the benefits of compounding through dividend reinvestment:
Source: DRIP Investor Newsletter
Source: DRIP Investor Newsletter
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2. Dollar-Cost Averaging and E-ZVestSM— One method to take advantage of dollar-cost averaging is through our E-ZVest service. This feature allows you to set up regularly scheduled purchases of your selected stocks. You can designate a specific dollar amount (as little as $20 or as much as you want) to be invested in each stock on a weekly, monthly or quarterly basis.
The money for each purchase can either come from your personal bank account or from your BUYandHOLD account. Since you determine the exact dollar amount to invest, you can budget accordingly throughout the years and can make changes at any time.
To activate this feature, simply go to the "View Your Account" section and click, "E-ZVest."
Weekly purchases are made each Wednesday (or the next business day if Wednesday is a holiday). Monthly purchases are made on the 10th of each month (or the next business day if the 10th is holiday). Quarterly purchases are made on the 10th of each of the following months: January, April, July and October (or the next business day if the 10th is holiday).
Consider the impact of adding dollar-cost averaging to your BUYandHOLD investing plan as a means to decrease the risk of making a large investment when prices are at their peak (something every investor hopes to avoid). You should consider your financial ability to continue to invest during period of low price levels.
The charts below demonstrate the added value of making regular investments on a consistent basis:
Source: DRIP Investor Newsletter
Source: DRIP Investor Newsletter
Over time, this strategy has the potential to add the "one, two punch" you may need to maximize your return on investment in stocks from prominent, established corporations.
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BUYandHOLD does not offer or provide any investment advice or opinion regarding the nature, potential, value, suitability or profitability of any particular security, portfolio of securities, transaction or investment strategy. Any investment decisions you make will be based solely on your evaluation of your financial circumstances, investment objectives, risk tolerance, and liquidity needs. The securities mentioned above are being used for illustrative purposes only and should not be regarded as an offer to sell or as a solicitation of an offer to buy and past performance is no guarantee of future results.
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