How Long Should You Hold Stocks? Investing for the Long-term

How Long Should You Hold Stocks

When purchasing individual stocks, taking a long-term time horizon is imperative for generating life-changing returns. Consider holding a position for 20 years or more. While quick profits may be alluring, patience enables compound growth and unlocks a stock’s full potential.

Just examine good companies like Apple, Amazon, and Netflix. Long-term investors in these titans did not merely double or triple their money; their patience afforded exponential rewards. The Oracle of Omaha, Warren Buffett, once famously remarked, “My ideal holding period is forever.”  He understands the immense power of holding stock investments for the long run.

To beat the broader market, the key is not flawless stock selection as much as an unshakable conviction to hold through short-term market fluctuations. As we dive deeper, it becomes clear that a 20-year investment horizon separates good returns from generational wealth creation. Tune out the noise and commit for the long haul.

How Long Does the Average Person Hold a Stock?

According to research from online brokerage eToro, the average investor holds a particular stock for just 10 months. This compares to an average holding period of roughly five years in the 1970s.1

There can be several explanations for this, including the increase in short-term volatility and the advent of commission-free trading, which reduces the friction when buying and selling shares.

Whatever the reason, I believe stock market investors should focus on finding their best ideas and hold them forever. This is because the most fantastic higher returns in the market can only be achieved through a long-term investment strategy.

Consider these theoretical $10,000 investments made in today’s top companies 20 years ago.

$10,000 in Invested 20 Years Ago Would be Worth This Much Today 

Apple$6.5 million
Netflix$3.5 million
Nvidia$1.6 million
Amazon$975,000
Microsoft$136,000
S&P 500$50,000
Source: MyWallSt

A typical financial advisor will tell you to cash out when profits hit 20% to 30%. This advice is flawed. It implies that you’re in the market merely to profit from short-term fluctuations, overlooking the exponentially larger rewards achievable from long-term investing.

A prevalent notion is to divest 50% of your stake after your stock doubles. For example, say you put $10,000 into a stock and it surges by 100%. Sometimes, an investment adviser might advise you to offload half, thus recuperating your initial investment. In this strategy, you’re essentially “playing with the casino’s chips.”

This advice baffles me. It’s astonishing to me that professionals are compensated for suggesting these investment decisions. Imagine relinquishing Apple shares post their initial 100% uptick. Twenty years later, you’d have a mere $3.25 million instead of a staggering $6.5 million.

Moreover, what’s the plan for the $10,000 in freed capital? Redirect it into another equity? Your adviser might coax you to “diversify” your asset allocation and shift funds into something safer . . . but that choice often lags behind the powerhouse you just parted with. Which equity outperformed Apple over the past two decades? Nothing did.

If I sold half of my Tesla shares today, I’d be forced to find something that could potentially outpace Tesla over the next 20 years, and I would be hard-pressed to find anything.

Time in the Market vs Timing the Market

In the investing world, there’s a timeless debate: Is it better to invest for the long term? Or is it better to try to perfectly time your entry and exit points? Let’s break it down.

Time in the Market

This strategy champions long-term gains. Instead of fretting over daily market ups and downs, investors hold onto their stocks, allowing their investments to grow over time. Historically, despite short-term fluctuations, markets trend upward in the long run. By staying invested, you harness the power of compound interest and sidestep the pitfalls of emotion-driven decisions.

Timing the Market

Here, investors attempt to predict when the market will rise or fall, buying and selling based on these forecasts. The aim? Buy low and sell high. But there’s a catch: consistently predicting market movements is notoriously difficult. One wrong move can lead to substantial losses or missed growth opportunities.

In short, while the allure of perfectly timing the market is tempting, it’s a risky game. History suggests that a steady, long-term approach often yields better results and will help you to meet your investment goals. Remember, it’s not about predicting the next market swing. It’’s about letting your investments flourish over time.

How to Pick a Stock for the Long Term

There are numerous guides on how to pick a stock. Most are quite terrible. I’ve noticed a recurring theme: many “how to pick a stock” articles recycle the same, tired conventional wisdom without providing a clear framework for understanding stock ownership.

It’s not just about picking profitable long-term investments (although that is certainly the goal). It’s about developing a deep understanding of why you would want to become a shareholder of a company in the first place.

How Do I Choose My First Stock?

The decision to buy an individual stock often stems from the quest for potentially higher returns compared to less risky investments, such as certificates of deposit. With higher risk comes higher rewards. This is the lure of the stock market.

Many investors might begin their stock market journey with an exchange-traded fund. They might buy shares of the SPDR S&P 500 ETF Trust or the Vanguard 500 Index Fund, both of which mirror the performance of the S&P 500 and offer lower volatility compared with individual stock ownership.

If you’re invested in such ETFs or mutual funds, the logical next step might be to seek out individual stocks that have the potential to eclipse the returns of the S&P 500. After all, if an individual stock doesn’t offer the prospect of outperforming the broader market, there wouldn’t be a reason to own it, right? 

Historically, the S&P 500 has delivered annual returns in the ballpark of 10-11%. Therefore, any stock you choose should have the vigor to surpass this benchmark over an extended period. 

But how do you identify such stocks?

Stocks go up for one reason: growth, and the prospect of even greater growth. Ideally, you should be honing in on companies showcasing not just profitability, but a robust track record of escalating profits and revenue, year after year. And, it’s paramount that this growth trajectory is steeper than that of the broader market.

What Should My First Stock Be?

Imagine for a second you had a time machine. This time machine allows you to travel 20 years into the past and buy exactly ONE investment with $10,000. What do you buy?

I hope you didn’t say the S&P 500. That would net you only $50,000 after 20 years. However, most of you (without Googling) would know to pick an investment that has far outperformed the S&P 500 Index, something that is high growth … something world-changing and revolutionary such as Netflix or Amazon or Apple. 

Let’s go with Apple, the largest company in the world by market capitalization. A $10,000 investment in Apple in 2003 would be worth $6.5 million today.

Well, we don’t have a time machine. But we can develop a framework for finding companies that have the potential to become the next Apple. Here are three questions I ask myself when considering any investment:

  • Does this company have the potential to change the world?
  • Will I regret not owning this company in 20 years? 
  • If I could hold only ONE company for the next 20 years, what would it be?

I believe if you ask yourself these three questions, you will be able to answer the question, “What Should My First Stock Be?”

You’re looking for a growth stock that has high growth with the potential to change the world, like Apple or Amazon or Netflix. A company that is in a position to improve the lives of everyone, everywhere, is practically guaranteed to grow faster than the broader economy.

You’re looking for a company that you will want to own for the next 20 years. World change doesn’t happen overnight. It takes time. If you bought $10,000 in Apple stock in 2003 and sold when your holdings reached $100,000, you would have netted a tidy 1,000% gain. Not bad! But you would have missed the opportunity to earn $6.5 million.  

You’re looking for the ONE company for which you have the highest conviction. This forces you to consider separate from the wheat from the chaff. Of all the stocks you could choose to buy today, which company will be dominating in 20 years’ time? Pick one company, and explain your reasons why you think that company will be the next Apple.

For me, that ONE company is Tesla … not only is Tesla a good stock to buy, but it’s also one of my three stocks to invest in right now. It’s my highest conviction opportunity. If forced to choose, I would own Tesla and nothing else.

Conclusion

Ultimately, deciding on the ideal stock holding period comes down to your personal risk tolerance and financial objectives. Those with a higher risk appetite may be comfortable holding individual stocks for a time frame of 20 years or more to achieve potentially outsized long-term returns. 

However, such an extended holding period also comes with greater short-term volatility risk.

Conversely, more risk-averse investors may prefer a shorter holding timeline that better aligns with their financial goals. Remember, there is no universally “right” holding period—it depends entirely on your unique financial situation and objectives.

Regardless of your preferred investment horizon, committing to quality, high-conviction stocks for a longer period can help compound returns over time. As your financial portfolio and risk tolerance evolve, you may opt to hold stocks for shorter or longer durations. The key is finding investments that match your goals. With reasonable expectations and disciplined rebalancing, long-term stock investments can steadily build wealth without requiring perfect market timing.

Author Profile

Mark Fortune
Mark Fortune is a seasoned journalist and editor with more than two decades of experience. Specializing in technology, cryptocurrency, and stock investments, his incisive writing has made significant contributions to the business journalism field. Mark’s work is celebrated for its depth, clarity, and influence on a global readership.
  1. eToro. The Costs of Rising Short-Termism. February 9, 2023.