Buy and Hold: 5 Powerful Advantages

The flamboyant stock market legend André Kostolany once said: “Buy stocks, take sleeping pills and don’t look at your securities anymore. After many years you will see: you are rich.” In this article, we take a close look at what is undoubtedly the most boring, yet probably the most underrated investment strategy: buy and hold. We show you how simply it works, where its opportunities and pitfalls lie, and why the financial industry doesn’t like it.

What is a buy and hold strategy and how does it work in practice?

According to Wikipedia, buy and hold, in German Kaufen und (be)halten, is an investment strategy that aims to hold investments for the long term. It goes on to say that the basic idea behind “buy and hold” is that, once the investments have been structured in line with portfolio theory, you refrain from trying to generate extra returns by reshuffling the portfolio (e.g. through stock picking).

Implementing “buy and hold” is simple

You can find out how easy it is to structure your assets this way in our article “Asset allocation: the be-all and end-all of investing”. The key is to split your assets into different asset classes by percentage – and to stick to that split over the long term .

So instead of constantly reshuffling, in line with the saying “back and forth makes your pockets empty”, you only rebalance occasionally, e.g. once a year or when triggered by larger price swings.

In doing so, you check whether the target values you defined at the outset (e.g. equity share = 50%) (more or less) match the actual values. If necessary, you make the corresponding corrections through transactions.

As we will see later, rule-based rebalancing has a positive effect on returns. You can find out more about rebalancing in our article “Rebalancing: bringing your portfolio back into balance”.

Equity ETFs are the obvious investment vehicle for “buy and hold”

It stands to reason that the return-generating part of a buy and hold strategy is best implemented with equity ETFs that cover the global market.

In our view, the “buy and hold” philosophy also means that you don’t have to keep checking your portfolio, but can more or less sit back and relax.

We explain what to look out for when buying ETFs in this article.

Individual stocks and “buy and hold” don’t go together

We consider investing in individual stocks unsuitable for a buy and hold strategy. Holding shares in individual companies requires you to keep a regular eye on their business performance and strategic direction.

And this more or less intensive engagement with a company contradicts the long-term approach of buy and hold.

After all, you will inevitably have to dump a stock quickly if, for example, management blunders bring the company to the brink of bankruptcy. A striking example, standing in for countless others every year, is former industry leader Nokia, which slept through the shift from mobile phones to keyless smartphones. And vanished from the scene in no time.

Conclusion

In summary, a buy and hold strategy ideally means

• long-term,
• rule-based (according to a predefined asset allocation),
• broadly diversified and
• passive (index-based) investing.

Can you get rich with a buy and hold strategy?

If you follow the broadly diversified buy and hold approach described above, you participate 1:1 in the global price performance of equities.

Reassuringly for you: with buy and hold, you run no risk of total loss as you do with individual stocks.

At the same time, however, the strategy requires the financial and mental strength to keep a cool head and stay invested even during the most severe market turbulence (see our “Stock market crash guide: how to master market crises with confidence and profit in the long run”).

Because, as paradoxical as it may sound, it is precisely this “staying invested in the market”, or “time in the market”, that is the recipe for success of buy and hold, as the following table impressively shows.

Stock market performance from 1996 to 2016 and opportunities missed by staying on the sidelines

Indices	always invested (buy and hold)	without the 10 best trading days	without the 20 best trading days
SPI TR*	+322%	+129%	+42%
Dow Jones Eurostoxx 50	+328%	+93%	+8%
FTSE 100 TR*	+295%	+104%	+31%
S&P 500 TR*	+440%	+170%	+68%

(*TR = Total Return, i.e. with dividend. In the case of the DJ Eurostoxx 50 from the beginning of 2001 with total return. Data source: Privatbank Bellerive; published in Cash Online on 6 July 2017)

Spending just a few select days on the sidelines can therefore cut your returns drastically.

Research by Erwin Heri, a Swiss professor at the University of Basel, has also shown that the best and worst days are often very close together in time. He notes that investor psychology and media hype are often misleading, especially in such turbulent market phases.

In other words: after days of falling prices, many investors lose their nerve, sell and miss the “super days” that follow. Heri concludes in true buy and hold fashion: “Sit back and think of your long investment horizon.”

Earn over 8 percent a year in the long run with buy and hold

With a globally diversified investment in an equity ETF, from 31 December 1987 to 30 September 2025, i.e. over a period of around 38 years and including every stock market crash, you would have earned an annualised return before taxes and costs of 8.68% (Source: MSCI ACWI Factsheet). This impressive long-term return can even be boosted by up to 0.5 percentage points a year through rule-based rebalancing (see our article “Rebalancing: bringing your portfolio back into balance”).

Of course, there is no absolute certainty that such a respectable level of return can also be achieved in the future.

Conversely, a buy and hold strategy also means that you give up any ambition to beat the market and earn an excess return.

The power of compound interest in buy and hold

With the buy and hold approach, the powerful compound interest effect can also unfold its full force, because you stay invested permanently and for the long term.

A simple example to illustrate:

An initial investment of CHF 20,000, an investment period of 30 years and an annual increase in value of 8% results in a handsome final capital of CHF 218,715. That’s more than ten times what you put in!

If you also invested CHF 600 every month, you would already be a millionaire after 30 years.

We explain how strong this effect is in practice – and why many people still don’t make consistent use of it – in the article “If compound interest is so simple, why aren’t we all millionaires by now? 6 stumbling blocks”.

So yes, thanks to compound interest, you can get rich with a buy and hold strategy! Provided you have a good deal of patience and invest some starting capital and/or a monthly contribution in a global equity ETF.

Or, to repeat the quote from Kostolany we started with: “Buy stocks, take sleeping pills and don’t look at your securities anymore. After many years you will see: you are rich.”

How it differs from other investment approaches

To sharpen your understanding of the buy and hold strategy, here is an outline of two well-known “counter-strategies” built around active investing:

Stock picking

Stock picking based on fundamental analysis

Stock picking is probably the most widely practised investment behaviour among private investors. It is essentially based on a ratio-based stock analysis, which the stock picker uses to decide whether a stock is undervalued and therefore worth buying.

The stock picker analyses the economic environment and draws on one or more company-specific ratios such as the price/earnings ratio (P/E).

At the heart of this strategy is the stock picker’s belief that he can foresee how the market will develop. In other words, unlike the rest of the market, he thinks he can spot an undervalued stock as well as the moment when that stock has reached its fair value. He then sells the stock, and the process starts all over again.

From the perspective of the efficient market hypothesis, which forms the theoretical foundation of modern portfolio theory, such a strategy cannot work. The hypothesis assumes that markets are fundamentally transparent and that listed companies are therefore “correctly” valued at all times.

Stock picking based on chart analysis

Besides analysing fundamental data, there is also stock picking based on chart analysis, also known as “technical analysis”. This refers to the attempt to identify trends based on price changes and trading volumes.

Unlike the fundamental analysis described above, chart analysis is primarily about the behaviour of the financial market rather than identifying a possible undervaluation based on fundamental data.

Academics mostly take a critical view of this approach, and its proponents often dismiss it as pure hocus-pocus.

Market timing

This strategy focuses less on individual stocks and more on shifting entire asset classes (“Now is the time to overweight commodities.”), markets (“Get out of emerging markets, pronto!”) or sectors (“Topping up on insurance stocks now offers above-average return potential.”) based on a supposedly favourable moment.

From an academic point of view, this strategy also largely fails, or rather contradicts portfolio theory, according to which markets are efficient and all developments are therefore continuously priced in.

A mutual friend of ours vividly demonstrates at our occasional get-togethers just how damaging market timing can be to returns. For around ten years now, he hasn’t had any significant investments in stocks. He sees the record highs regularly reached on the stock markets as a sign of overvaluation, and they scare him off.

Instead, he holds an ever-growing cash position. Always waiting to finally find the right moment to get in. Standing on the sidelines, he misses out on returns in the form of price gains and dividends year after year.

So instead of “timing the market”, the buy and hold approach champions the principle of “time in the market”.

Science versus stock picking and market timing

As already indicated, active investment strategies such as stock picking and market timing have a hard time from a scientific point of view. Empirically, hardly any active investment strategy beats the market, or the relevant benchmark, over the long term.

The science-minded author Dr Gerd Kommer is also critical of active trading. In his standard work “Souverän Investieren mit Indexfonds und ETFs” (5th edition), which is well worth reading, he sums it up as follows:

Gerd Kommer, author

Why don’t most investors follow a buy and hold strategy?

As we have seen, buy and hold is an extremely promising investment strategy. And yet the majority of private investors don’t follow it. We see three main reasons for this:

• Our own greed for profit
• Powerful vested interests
• Psychological reasons

Our own greed for profit

To be fair, it has to be said that you won’t get rich quickly with a buy and hold strategy. Anyone who tends to be impatient when investing and/or expects sky-high returns will prefer short-term, highly speculative deals.

But not even the flamboyant stock market legend Kostolany has a one-size-fits-all recipe for getting rich quickly:

André Kostolany, stock market legend

Powerful vested interests

A buy and hold investor generates significantly lower costs than an actively minded investor. What is a big advantage for the passive investor’s returns is, by its very nature, not in the interest of the financial industry. On the one hand, it profits from the more frequent transaction fees generated by regular trading. On the other, it pockets relatively high fees for the banks’ own actively managed investment products.

That’s why it is rather unlikely that your bank advisor will recommend ETFs to you.

Unless, perhaps, he has the stature and independence of a Warren Buffett. The famous star investor, who in principle also follows a buy and hold strategy, paid the greatest possible respect to the pioneer of passive index investing, John “Jack” Bogle.

In this short and moving video clip from the 2017 annual meeting of his conglomerate Berkshire Hathaway, Buffett praises the extraordinary achievements of Bogle, who was in the audience, and congratulates him on his 88th birthday.

Buffett pays tribute to him by saying that no one has done more for American private investors than Bogle. Against the fierce resistance of the powerful financial lobby, the index funds Bogle launched from the mid-1970s onwards saved untold billions in fees, allowing investors to achieve better returns than the “professionals”. Bogle passed away in 2019 at the age of 89.

Psychological reasons

We see investor psychology as the third major reason why the buy and hold strategy doesn’t attract more followers.

We live in a performance-driven society in which we learn early on that there is no reward without effort. We also agree that practice makes perfect – nobody is born a master.

In everyday life, the supposed truth of these folk wisdoms is confirmed again and again. At work, in sport or in music, it is usually the case that the more intensively we pursue an activity, the better and more successful we become at it.

Alternatively – in the spirit of the modern division of labour – we turn to a specialist, for example the carpenter, hairdresser or shoemaker we trust. And lo and behold: the result is much better than if we had done it ourselves!

That is why, when it comes to investing, we also intuitively assume that active involvement, whether through stock picking or market timing, will deliver better performance than a passive buy and hold strategy.

If we lack the time, the interest or both to deal with investing ourselves, we simply go to a specialist – in this case an investment advisor. We accept the high fees, because performance and quality come at a price. So far, so good? Unfortunately not.

Because in investing, active behaviour is usually not rewarded with better performance. Quite the opposite. One of the main reasons is the extra cost that, unlike with “buy and hold”, arises from higher fees for transactions and/or external asset management.

Advantages and pitfalls of the buy and hold strategy

Five advantages of “buy and hold”

We see the following five advantages of the buy and hold strategy, which we follow consistently ourselves out of conviction:

• Convenient and simple: Instead of regularly wrestling with time-consuming market and company analyses, with buy and hold you are travelling on autopilot, so to speak. This means you act purely on the basis of rules, which creates hardly any administrative effort, for example when filling in your annual tax return.
• Unbeatably cheap: You incur little or no transaction costs, because with buy and hold you don’t keep buying and selling. On top of that, choosing passive ETFs means extremely low ongoing costs. In other words, you can expect an annual TER of only around 0.2%. That is roughly one tenth (!) of an actively managed fund.
• Transparent and self-directed: If you invest in one or more ETFs as part of your buy and hold strategy, you can do so entirely on your own terms, online with just a few clicks on numerous stock exchanges. Once you are invested, you can check the price and the deviation from the index (tracking error) at any time.
• Optimal risk/return ratio: A global investment in one or more equity ETFs lets you participate 1:1 in the performance of the world’s stock markets. Historically, over several decades, this has delivered an annual gross return of over 8 percent, including various stock market crashes, but without taking on the risk of a total loss as with individual stocks.
• Rational and scientifically sound: Countless studies confirm the success of buy and hold. This scientific foundation provides peace of mind. It is a thoroughly rational strategy with a successful track record.

– P a r t n e r o f f e r –

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Five pitfalls of “buy and hold”

Where there is light, there is also shadow. You should be aware of the following five challenges of the buy and hold strategy:

• Not intuitive: You have to accept (learn) that in investing – unlike in other areas of life – doing nothing for the long term is actually a very promising approach.
• No excess return: Settling for the market return, or giving up on beating it, may also be hard for some. It might help to remember the stock market rule “back and forth makes your pockets empty”.
• Too boring: A buy and hold strategy is completely unspectacular and anything but sexy. That’s a fact, and there’s no sugar-coating it. Except perhaps that, in the end, only the (higher) return counts.
• Crash resistance: Staying stoically calm during stock market crashes and not slipping into panic-selling mode requires solid financial literacy – and a good deal of nerve.
• Resistance to financial pornography: Not letting yourself be sweet-talked by the financial industry, i.e. above all consistently ignoring its daily forecasts and investment tips, takes a strong will and solid financial knowledge. (Unfortunately, the term “financial pornography” is not our invention; it comes from the author Gerd Kommer mentioned above. He mainly uses it to describe the dubious chatter of so-called financial experts who are primarily pursuing their own interests.)

Final conclusion

A do-it-yourself buy and hold strategy based on ETFs is the simplest and cheapest investment strategy and – scientifically speaking – probably the one with the best risk/return ratio. It works according to the philosophy “slow and steady wins the race”.

In our view, the fact that private investors don’t practise it more often has to do with our own greed for profit, the powerful financial lobby and, last but not least, psychological factors. After all, doing nothing is usually not a successful strategy in other areas of life.

Nevertheless, the buy and hold strategy is only suitable for investors who are disciplined and have strong nerves, and who want to and are able to invest for the long term.

What do you think? Whether you share our opinion or not, we look forward to your comment!

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Updates

2025-11-04: MSCI ACWI Factsheet updated; “In a nutshell” section added.

Disclaimer

Disclaimer: Investing involves risks. You have to decide for yourself whether or not you want to take these risks.

Errors excepted: We have written this article to the best of our knowledge and belief. Our goal is to provide you as a private investor with information on finance that is as objective and meaningful as possible. If we have nevertheless made mistakes, or if important aspects have been forgotten and/or are no longer up to date, we would be grateful if you let us know.