Long-term investing (also called the buy-and-hold strategy) is the opposite of jumping in and out of the market. It's staying in the market for a long period of time, no matter how many ups and downs you encounter. You simply avoid selling until you've reached your goal--or until there's a significant change in your investments or your portfolio.

Before you invest, determine what you want to accomplish and how much risk you're willing to face. Then, consider the risk/return tradeoff. How much is your investment expected to provide in return, and how much risk is involved? With the answers, you can decide if the investment suits your goals and your risk tolerance.

One benefit of long-term investing is that your investment will grow significantly, as the market trends upward over time. A long-term outlook justifies the time and effort it takes to become knowledgeable about a company. That same commitment to knowledge helps you dodge these pitfalls:

The "herd mentality"

"Recency bias"

"Herd" investors jump into an investment because it's popular to do so--to receive some short-term gains. Unfortunately, by the time many "herd" investors buy a popular stock, it's already too well known to be a good deal. These investors regularly buy stocks just as the prices are about to drop. "Recency" investors--also looking for short-term gains--try to time the market by considering recent stock performance. They predict what a stock will do in the near future based on what it has done in recent months, weeks, or days. The danger is that no one has figured out how to successfully predict short-term stock performance. Many investors encounter unfortunate losses using this approach. Buying and holding for the long term means ignoring what others do--and picking stocks based on their strong fundamentals, not short-term performance.