Why the Buy-and-Hold Method of Investing Will Never Make You Wealthy

Buy and Hold Strategy

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Buy and Hold Strategy

The following is adapted from The Tao of Trading.

Few financial myths are as deeply entrenched in the psyche of most people as this claim: “buy and hold is the only rational investment strategy.”

“Buy and hold” is the foundation—the absolute bedrock—of the investment advice industry. Almost everyone who derives their income for delivering investment advice is singing the praises of “buy and hold” from the rooftops. But that advice is as subjective as it is widespread.

The real reason buy-and-hold style investment products are so popular isn’t that they’re the best option, but that they’re highly scalable. These products are easy for investment firms to package and sell. However, as this article will explain, buy and hold will never make you wealthy.

What “Buy and Hold” Advises—and Why It’s Flawed

As the name suggests, the buy-and-hold strategy involves buying stock and holding it for years, even decades, regardless of fluctuations in the market. With a long-enough time horizon, you’re likely to see healthy gains. Buy and hold will likely maintain your wealth if you already have it, but it’s not going to make you wealthy. You simply won’t see high enough returns consistently.

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According to mainstream financial media, the road to wealth is to save your ass off and accumulate as much money as you can from your salary, with the pie-in-the-sky dream of living off the interest we earn on all the money we’ve managed to save. We are constantly sacrificing today for tomorrow.

It is a widely held belief in our society that wealth is determined by how much money we have saved in the bank, our investment portfolio, or in retirement accounts, regardless of any other factor. This myth dominates our thoughts and conversations on personal finance, and we accept it without question.

If you have money tied up in stocks and locked in the bank, untouchable until you retire, is that really wealth? We are working our asses off and saving today, all for tomorrow. But tomorrow never comes.

Buy and Hold Only Works During a Rising Market

The other problem with the conventional buy-and-hold (or “buy and hope”) method of investing is that you can only make money when markets rise.

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If the stock market corrects, enters a bear market, or crashes, you are going to lose money. You are going to feel stressed and scared, and you’ll be prone to making lower quality decisions as a result. And no, traditional diversification won’t save you.

It is true that markets rise over time. The stock market rises about 75 percent of the time, in fact. But stock market falls tend to happen so quickly, and the falls can be so significant and so deleterious to the value of your wealth, that not learning how to make money during a falling market means leaving a LOT of money on the table.

Financial institutions will not teach you how to profit from a falling market because they do not have the necessary tools or expertise to sell to you. That is why they are always telling you to “focus on the long term.” They can only help you to glacially increase your money over the long term, not achieve rapid growth.

You Can’t Save Your Way to Prosperity

In a world filled with financial advice, very few have enjoyed financial success. Conventional wisdom when it comes to investing and growing wealth is not working for the majority of us. The big wake-up call for folks is this: you can’t save your way to prosperity.

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In order to achieve prosperity, you need to approach life with a growth mindset rather than a scarcity mindset. This means you need to find ways of generating additional sources of income, rather than skipping coffees and clipping coupons.

The conventional way of thinking about money is to think of it like a smartphone battery.

Every month, as we pay for rent, groceries, car payments, and insurance, the battery gets depleted. Then our paycheck comes in and the battery is recharged. But why not just get a second battery?

Trading is the quickest, easiest way I have discovered to generate a second income (and get that second battery!) Trading requires minimal capital outlay, it can be learned relatively quickly, it can be done part time, and you don’t need to hire any staff.

Trading Is the Key to Rapid Wealth Growth

If you want to rapidly grow your wealth, forget the buy-and-hold method. As an investment strategy, it’s too slow and inconsistent (only growing your money during a rising market) to ever make you truly wealthy, and it requires that you sacrifice today for tomorrow.

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The reason buy and hold gets recommended by so many investment brokers isn’t because it’s the best strategy, but because it’s an easy sell.

To grow your wealth or generate a second income, learn to trade. It is a skill and a career you can pursue for the rest of your life, well into retirement. With experience, it may only take you twenty minutes or so per day to generate that second income. Meaning you could end up with both the time and the financial resources to pursue the life of your dreams, instead of putting that dream off indefinitely.

For more advice on growing your wealth through trading, you can find The Tao of Trading on Amazon.

About Simon Ree 1 Article
Simon Ree has twenty eight years of experience as an active trader, investor, and financial markets professional. He previously held senior positions with Goldman Sachs in Sydney and Citibank in Singapore before deciding to focus on options trading full-time in 2017. He has spent over 40,000 hours watching and analyzing markets, and during this time, he “cracked the code” on how to trade safely and profitably. Today, he’s passionate about teaching others what he’s discovered. In addition to trading, Simon is a certified Jeet Kune Do instructor and a Reiki master. He lives in Singapore.

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