Pippa inherits $$12,500$ from a distant relative. She decides to invest her inheritance in a diversified, dividend$-$paying mutual fund. At the time of her initial investment, she purchases $500$ shares at a price of $$25$ per share.

Over the next $30$ years, the mutual fund increases in value at an average rate of $7\%$ per year. In addition, the fund pays an annual cash dividend of $5\%$ per year. Because Pippa understands that reinvesting her dividends can make a big difference to her total long$-$term returns, she reinvests her dividends every year in order to purchase additional shares of the fund.

The following graph depicts the growth of Pippa$$s investment as a result of her long$-$term buy$-$and$-$hold strategy:

Pippa is using a buy$-$and$-$hold strategy for several reasons. First, she is investing for the term. Second, she react emotionally to the day$-$to$-$day fluctuations in the market. In addition, she reinvests the cash dividends from her investments by purchasing additional shares.

You can see from this example that buy$-$and$-$hold investing can be a powerful long$-$term investment strategy, as long as you choose strong investments that are likely to increase in value over time. Although Pippa$$s initial investment is only $$12,500,$ after $30$ years she has in her account.