The buy-and-hold investing strategy, otherwise known as long-term investing, entails buying stocks or other securities and holding them for a long time, sometimes decades. This long-term passive investing approach is different from active investing, in which an investor tries to time the market by buying a stock when the price is low and selling it when the price is high. Most buy-and-hold investors rely heavily on fundamental analysis, as that gives them a better idea about the future outlook of the stocks they want to buy.
In this guide, we explain what buy-and-hold stocks are and how you can buy (and hold) them. You will also get to see our list of best stock suggestions to buy and hold for 20 years.
Where Can I Trade Long-Term Stocks?
You can invest in long-term stocks through stockbrokers, investment companies, or online trading platforms. Because of the numerous features offered by some brokerages, including premium research and advisory services, you may want to use a full-service brokerage. Since you’ll be accumulating wealth over the long term, you might consider a tax-efficient share trading account — such as a Stock & Shares ISA or Self-Invested Personal Pension (SIPP) in the UK — rather than a regular trading account.
What Are Buy-and-Hold Stocks?
Buy-and-hold stocks are stocks that an investor can hold for a long period, which can run into decades. These are stocks that have solid fundamentals with a great capacity for growth in the future. In other words, you may look at them as long-term growth stocks.
For example, Amazon grew by 120,000% in the 23 years between its IPO in May 1997 and May 2020. To put it in another way, $1,000 invested in Amazon stock during the IPO on May 15, 1997, at $18 per share, would be worth $1.2 million as of May 2020. This is quite massive, and it goes to show how buy-and-hold stocks can grow exponentially.
In addition to growth potential, some buy-and-hold stocks offer consistent dividends and even raise their dividends every year. Dividend-paying stocks can provide investors with predictable income, but not all dividend stocks are good for long-term investments.
Investors don’t look at short-term price fluctuations and technical analysis when trying to find good buy-and-hold stocks; instead, they focus on using fundamental factors that determine the growth potential of a stock. Some of those factors include the significance and importance of the company’s products or services, the sustainability of its business model, and the quality of its management.
How to Buy-and-Hold Stocks for 20 Years
Conduct Thorough Research
Since you are going to hold the stocks for a long time, it’s very important to do thorough research before choosing your buy-and-hold stocks. Your research must be based on fundamental analysis: evaluating the company’s business model, balance sheet, cash flow, income statements, and management, as well as the general direction of the economy. You want to buy and hold a stock with a proven track record of making profits and huge growth potential.
Open an Account with a Reliable Broker
Twenty years is a long time, so you need a reliable broker that can meet your long-term needs. Look for a broker with a presence in multiple countries or one that can be accessed easily from anywhere in the world— because you don’t know where you will be in 20 years’ time. Also, consider the broker’s policy for transferring your assets to your dependents.
When you have opened an account and funded it, it’s time to start buying. But don’t rush in. Many brokers and financial websites provide “stock screeners” that let you filter lists of stocks based on certain criteria such as their dividend yield. Remember you’re looking for companies that will still be profitable in the next decade(s).
Top 10 Stocks to Buy-and-Hold for 20 Years
Based on their business models, impressive products and services, track records of success, and flexibility to respond to market demands, we have identified these top ten best stocks to buy-and-hold for 20 years:
- Apple (NASDAQ: AAPL)
- Microsoft (NASDAQ: MSFT)
- Amazon (NASDAQ: AMZN)
- Advanced Micro Devices (NASDAQ: AMD)
- Virgin Galactic Holdings Inc (NYSE: SPCE)
- NextEra Energy (NYSE: NEE)
- Tesla (NASDAQ: TSLA)
- Walt Disney Co. (NYSE: DIS)
- PayPal (NASDAQ: PYPL)
- Visa (NYSE: V)
1. Apple (NASDAQ: AAPL)
Apple was the first company in the United States to hit a $1 trillion market capitalization, rising to $2.3 trillion at the time of writing. In February 2021, Apple was in control of 40% of the US smartphone market. The company has evolved from a phone manufacturer to a mega-tech company with tentacles in other sectors. In 2020, Apple announced plans to start building electric cars and is already developing autonomous driving technology. In the five years to 2021, Apple stock rose by 476%
2. Microsoft (NASDAQ: MSFT)
Microsoft may not be the colossus it once was, but it is still a force to reckon with. The company had a market capitalization of $1.8trn in February 2021. Though starting with desktop applications, Microsoft has also expanded into other areas, including games, remote work applications, and cloud services. In the five years to 2021, shares of Microsoft have risen by 385%.
3. Amazon (NASDAQ: AMZN)
Amazon is the world’s largest retailer. The company was one of the biggest winners from the coronavirus pandemic as the shutdown measures forced people to depend on e-commerce. However, unlike other retail companies, Amazon has leveraged cloud computing to muscle itself to the pinnacle of retail shopping. Amazon shares rose by 546.8% in the last five years to 2021.
4. Advanced Micro Devices Inc. (NASDAQ: AMD)
Semiconductors have been essential drivers of technology adoption. Already there is a global shortage of microchips, perhaps an indication of what may define the industry in the years to come. Advanced Micro Devices is a company that should benefit from the surge in demand for microchips. AMD shares returned 5024% in the five years to 2021.
5. Virgin Galactic Holdings Inc. (NYSE: SPCE)
Interest in space tourism is building. The consensus on Wall Street is that space will become a multi-trillion-dollar economy within the next decade. Space travel pioneer Virgin Galactic is positioned to reap from this growing market. Its shares rallied by 94% in 2020.
6. NextEra Energy (NYSE: NEE)
As the interest in cleaner energy intensifies, renewable energy companies such as NextEra Energy could become profitable long-term investments. NextEra is a pioneer in renewable energy and it generates more solar or wind energy than any other utility company in the United States. The company has earmarked $55 billion for building new infrastructure by 2022, which will reduce electricity generation costs. NextEra Energy had a market capitalization of $163.7bn at the time of writing.
7. Tesla (NASDAQ: TSLA)
The future belongs to companies that will disrupt our normal way of life. No other company typifies this more than Tesla. The pioneer electric car company is leading the charge in the way we consume energy; it is more than an electric car company. At the time of writing, Tesla has a market capitalization of $779bn and its shares rose by 13,471% in the five years to 2021.
8. The Walt Disney Company (NYSE: DIS)
Disney has reinvented itself. The company has seen a seismic shift in its core business model, choosing to focus on streaming content through its channel Disney+. Consequently, this former cyclical stock now offers a hybrid of growth and value. Disney shares rose by 105% in the five years to 2021.
9. PayPal (NASDAQ: PYPL)
Card payment platforms represent the future of cash transactions and online payments, and PayPal is at the forefront. The $350bn company is expanding into new markets. In 2021, it started accepting crypto payments on its platform. It has also announced plans to include other financial services such as stock trading, options trading, and derivative contracts. This would make PayPal a one-stop app for financial transactions. PayPal shares rose by 772.19% in the five years to 2021.
10. Visa (NYSE: V)
As the world continues to drift towards cashless transactions, companies such as Visa will remain relevant for a long time. The company has consistently made huge profit margins and is also aligning itself to the future needs of consumers, for example by considering accepting crypto payments. Visa shares grew by almost 1000% in the decade 2010 to 2020.
Expert Tip on Investing in Long-Term Stocks“ You need to do thorough research to select good stocks that can make good returns in the next two decades. Don’t try to time the markets, but do consider accumulating more shares “on the dips” when the company you have evaluated to be good value is even better value. And spread your risk across several stocks. ”- Emmanuel Ekwomadu
Why Invest in Long-Term Stocks?
Investing in long-term stocks brings higher returns than active investing because it minimises trading fees and reduces your capital gains tax bill (to zero, if you never sell the stock) while you watch the dividends roll in. And it’s less stressful than day trading because you don’t have to be tied to a computer screen.
Frequently Asked Questions
Long-term investing offers the best returns because stock markets always seem to rise in the long run, you can minimise your trading costs (compared with frequent traders), and you can build a nice retirement fund.
Any time is a good time to start investing in long-term stocks because you’ll be choosing them based on their fundamental metrics and business models rather than trying to time your purchase based solely on the share price.
Anyone of legal age can buy and hold stocks for 20 years. Long-term stocks are particularly suitable for those who are starting early to build their portfolio for retirement. UK investors should have long-term stocks in a Stock & Shares ISA or Self-Invested Pension Plan (SIPP) account.
Long-term stocks can be good for beginners because younger people can afford to hold for more years. Put another way, there’s no point buying a stock with a ten-year time horizon if you’re only five years away from retirement. But beginners must be mindful of how to assess the intrinsic value of the stocks they choose to buy and hold.
Buy-and-hold stocks are stocks with growth potential that yield enormous gains over the long term, while short-term stocks are stocks that don’t grow over time but tend to move maximally in the short term and then stagnate. You will need to perform fundamental analysis to choose the right long-term stocks, unlike short-term stocks that you can trade using technical analysis.
No, stocks are generally traded on weekdays between 9:30 am and 4:00 pm New York time when the US stock market is open for trading. In the UK stock market, stocks are usually traded between 8:00 am and 4:30 pm when the London Stock Exchange is open.