Buy-and-hold investing is a form of passive investing in which an investor acquires a portfolio of securities and holds them more or less permanently. Except for the original purchase—and the possible final liquidation—of securities, the portfolio is not traded. Income from the securities may be spent by the investor—a typical scenario for retirees living off income from investments—or reinvested in the portfolio to accumulate capital.
Buy-and-hold investing is generally associated with equities, which never mature. The term can reasonably be applied to long-dated fixed income investing, with proceeds from maturing bonds reinvested in the portfolio.
Unlike index fund investing, which requires an investment manager to sponsor some form of pooled investment vehicle, buy-and-hold investing can, and typically is, conducted by investors on their own behalf’s. In that case, there are no investment management fees to pay. That, combined with an absence of turnover, renders buy-and-hold investing less costly than all but the best of index funds.
For taxable investors, buy-and-hold investing tends to outperform index investing after-tax because buy-and-hold portfolios are more effective for deferring capital gains. A disadvantage of buy-and-hold investing is the fact that portfolios tend to be less diversified than those of index funds, although large buy-and-hold portfolios could easily hold several hundred securities.
Buy and hold investing is practiced by astute retail investors but not typically by institutional investors. This is unfortunate, because the strategy is excellent. Institutional investors who did use buy-and-hold investing would have little need for investment consultants, which is likely why those investment consultants aren’t recommending it.