A holding value is the amount of anticipated returns or dividends that are earned by purchasing and choosing to hold an investment for a specified period of time. Considered a theoretical value in that the projection of future returns is only an estimate based on the available information and forecasts of the future movement of that asset’s actual price, determining the holding value can help investors decide if making the purchase is likely to yield reasonable returns within the time frame under consideration. Should the investor believe the holding value is worth the risk and the dedication of assets for at least that amount of time, he or she will likely make the purchase and add the security to the investment portfolio.
The benefit of projecting the holding value of any asset is important, since doing so provides the investor with a reasonable idea of what type of returns can be expected within the defined time frame. This often is crucial to aiding investors in moving closer toward their financial goals, since the selection of the right combination of securities makes a huge difference in how quickly those goals are achieved. For example, if the goal of the investor is to create a portfolio that will fund a child’s college education, the investor will want to identify investments that will generate enough return between the date of purchase and the date those dividends are needed to pay tuition and fees. If there is some question as to whether or not those dividends will be sufficient, the investor may choose to consider other options that are a better fit for his or her needs.
Part of the process of determining the holding value is understanding what is likely to happen with the marketplace between the date of purchase and the projected date that the asset is sold. This means allowing for shifts that occur due to changes in consumer demand, political shifts that affect the performance of the marketplace in general, increased competition in the marketplace, and even changes in the economy that may trigger either more or less desire for the products sold by the issuing company. From this perspective, attempting to accurately project where the market will move is directly related to determining how that movement would impact the amount of dividends received.
Since there is always risk involved when it comes to buying and holding assets, investors will constantly be in the process of reassessing the holding value associated with each security in the portfolio. Doing so makes it possible to adjust projections as new information is collected that indicates the market will move in a direction other than the one originally projected. Adapting the projection of holding value to align with new market information makes it easier to determine if the investor should continue to hold onto the asset, or if selling it earlier than originally planned would be the best solution.