When it comes to stocks, there are a lot of different opinions on what you should do. Some people think that you should always be buying and selling stocks, while others believe that you should hold some stocks forever. So, which is the right strategy for you? Should you hold a stock forever?
In this article, we will explore the benefits and drawbacks of holding a stock forever, and we will give you a simple list of the best stocks to hold forever.
Can you hold a stock forever?
Technically, you can hold a stock forever. However, there are some risks associated with holding a stock for too long. First of all, the company might go bankrupt, in which case you would lose all your money.
Additionally, the stock might not perform well and you could miss out on other opportunities. Black swan events can also happen, and you might feel tempted to sell the shares.
That being said, it is possible to hold a stock forever. For example, if the company, as well as the brokerages that house the security of your security, is promised an entity lifespan of forever, then yes, you could technically hold a stock forever, and even pass it down to your kids.
There is no legal rule that states that you have to sell your stocks after a certain period.
What does it mean to hold a stock forever?
Forever can be quite philosophical but when people say that they are holding a stock forever, it simply means they will never sell it. It does not matter what the market conditions are or how much the stock price fluctuates, they will never sell.
The goal of holding a stock forever is to maximize long-term wealth. This strategy is also known as buy-and-hold. By holding a stock forever, you give it time to compound and grow. Over time, the stock price will likely go up, and you will make a profit.
This can also lead to generational wealth. For example, if you buy a stock and hold it for your entire life, you can pass it down to your children or grandchildren. They will then have the opportunity to sell it or hold it forever as well.
What are the benefits of holding a stock forever?
The main benefit of holding a stock forever is compounding. This benefit has to be listed first as it is the most important one. When you hold a stock forever, you give it time to compound.
This means that the profits earned each year are reinvested and added to the original investment. Over time, this can lead to significant growth.
For example, if a stock goes up on average by 10% and you start with $10,000, after one year, the value would be $11,000. The 10% would apply to the total value of the stocks and not just the initial investment. 10% of $11,000 would result in a total of $12,100 and so on.
This is how compounding works and it is one of the most powerful wealth creation tools available. By having a percentage multiplier applied to the past year's total, rather than just the original investment, growth is exponential. Exponentially is reinforced through time. So, by holding stocks forever, you allow compounding to work its magic.
Dividends are another benefit of holding a stock forever is that you will receive regular dividend payments. These payments can provide a source of income, which can be particularly useful in retirement.
Legally avoiding capital gains taxes is also beneficial when holding a stock forever. When you sell a stock, you are subject to capital gains taxes. These taxes can eat into your profits and reduce your overall returns. However, if you never sell your assets, you never have to pay capital gains taxes.
Finally, wealth protection for future heirs can help to protect your wealth and pass it on to future generations. If you sell your stocks, there is always the risk that the cash could be squandered.
However, if you leave your stocks to your heirs, they will receive them free of any capital gains taxes. as well as inflation. Most currencies decline in value over time, but if you select the best companies, they will likely increase in value, providing a hedge against inflation.
What are the best stocks to hold forever?
The best stocks to hold forever are the ones that are always going to be needed. For example, humans need to eat, so food stocks are always going to be in demand. Water is another necessity, so water utility stocks could also be a good choice.
Other examples of companies that are always going to be needed include healthcare, energy, and technology. These companies will continue to innovate and grow over time, providing shareholders with long-term growth potential.
Remember that the latest fads will one day become a relic of the past. But throughout human history so far, basic necessities are still required for human survival.
Stocks to buy and hold forever
Here are some stocks you can consider buying and holding forever:
1. Nestle (NESN)
2. Waste Management (WM)
3. Walmart (WMT)
4. American Water Works (AWK)
5. Aqua America (WTRG)
6. SJW Group (SJW)
7. Johnson & Johnson (JNJ)
8. Pfizer (PFE)
9. Coca-Cola (KO)
10. Costco (COST)
While there are many other great companies out there that could be added to this list, these are some of the best stocks to buy and hold forever. These companies have strong fundamentals and are leaders in their respective industries.
They also have a history of consistent growth and shareholder value creation. So if you're looking for some good stocks to buy and hold forever, consider investing in one or more of these companies.
Notable mentions are stocks from the banking sector, however, fintech might start to eat away at banks in the coming years, so they might not be the most secure investments. Technology companies are also worth considering, as they have the potential to grow exponentially.
However, they are also more volatile and can be subject to rapid changes in the market. If a tech company cannot remain competitive, its stock prices can plummet.
ASML is another notable mention as microchips will likely be around forever due to their lack of competition. But at the same time, technology is constantly changing, making this a more volatile pick.
Finally, it's important to also note that the energy sector can also be disrupted by a sustainable energy source, so this might not be the most secure investment in the long term.
Should you hold a stock forever?
Investing in a stock for the long term can be difficult for some investors, and when it comes to holding a stock forever it is even more complicated. Holding a stock forever depends mostly on your investment goals, and profile as well as the stock itself. Some companies will still be around in 50 years, while others may not.
Understanding the competitive landscape of a business today is hard enough, now imagine projecting that into the next 30, 40 or even 50 yeras.
Picking stocks to hold forever can be a difficult task. A majority of civilizations eventually collapse so it can be hard to predict which individual companies will still be around in the future. That being said, some companies have a higher chance of surviving than others.
The best stocks to hold forever are usually in the food, water, healthcare, and energy industries. However, if you want to invest in the stock market forever but don't know which companies are going to be around forever, you can invest in the S&P 500.
The S&P 500 is an index of the 500 largest companies in the United States. These companies have a history of surviving recessions and market declines. Nations also decline over time. If you so choose, investing in an index fund that tracks the emerging world powers such as China, India, and Brazil can help you get ahead of the game.
In the end, it's up to you to decide which stocks you want to hold forever. Just remember to do your research and invest in companies that you believe will be around for the long haul. There are no guarantees, but the math of compound interest is in your favor.