What Does Hold Stock Mean?

What Does Hold Stock Mean?
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If you choose to invest in the stock market, then “hold stock” meaning is one of the terms you should know and understand. That is because it may have long-term financial implications for you.

Stocks: An Introduction

Stocks represent your share of ownership in a company that sells them. And they are usually in the form of shares.

Companies usually sell them in the primary market to raise capital for various business reasons. For example, when a company wants to pay debts or expand and does not have money to do so, its owners can sell some of their equity to raise funds for those reasons.

Once you purchase company stock, you could sell your shares to other investors via the secondary market. Of course, you can do so to enjoy returns if the value of your stock rises. But you could also do so to minimize your investment losses.

It is worth noting that selling a stock at a loss does not always make you lose money. Short-selling is one of the strategies for stock market investors who know what they are doing.

However, if you belong to the average investor category, you may want to hold onto your stock. That is where the hold stock meaning and implications come in.

Hold Stock: Meaning and Implications

To hold a stock means to keep a security over a long period. When stock analysts advise you to hold a stock, they are essentially advising you not to sell or buy the company stock in question. So, you should keep what you have, but not make any additional moves concerning those shares.

Buy-and-hold investing is one of the best strategies for stock market investors with a longer investment time, and it offers several advantages. Below are some of them.

1. Reduction in Taxes

The IRS will tax you based on how long you hold a stock. If you sell it within a year of buying shares, you will be charged short-term gains tax rates. On the other hand, you will pay long-term capital gains tax rates if you hold it for at least a year or longer.

Generally, the short-term capital gains tax rate is similar to what you pay based on your ordinary income. And that is anywhere from ​10 percent to 37 percent​ for most people. On the other hand, long-term capital gains usually range from ​zero to 20 percent​ – most people pay around ​15 percent​.

It is usually better to pay long-term capital gains taxes than their shorter counterparts. That is because the former has lower tax rates and higher income thresholds than the latter.

For example, if you are a single taxpayer and your 2021 income was more than $209,425, your tax rate will be 35 percent. That rate would also apply to your short-term gains if you buy and sell stock in less than a year.

However, if you hold on to the stock for at least a year, as a single taxpayer, you will only pay capital gains if 20 percent of your 2021 income exceeds $445,850.

2. Reduction in Transaction Fees

Stock transaction fees refer to the brokerage fees you are required to pay whenever you trade your shares.

Usually, investors pay them every time they make a transaction within the stock market. So, the more you buy and sell, the higher your transaction fees are because they add up. Therefore, holding a stock reduces your transaction fees since you sell them fewer times.

3. Enjoyment of Dividends

Companies that make money may choose to share some of their profits with shareholders. These are known as dividends and may be in the form of cash, stocks and assets, among other things. If you sell your stocks, you are unlikely to enjoy dividends, which serve as a bonus of sorts.

4. Participation in Company Decision-Making

Shareholders have a right to vote concerning the company and the direction it takes. So, you can help elect new company directors during the company’s annual meeting. In addition, you get to have a say concerning company activities that may impact the value of your shares.

However, if you sell your shares, you lose those rights. Therefore, holding a stock is one of the best strategies for stock market investors who want to determine the fate of the company they have ownership in.

5. Enjoyment of Capital Appreciation

It is tempting to sell company stock when it is performing poorly. But the stock market tends to be volatile at times. However, given enough time, it will increase the value of your investments.

The capital appreciation the average stock experiences enables investors to make money in the end. But you cannot enjoy that kind of return unless you adopt a buy-and-hold investment strategy.