According to Rogers, you should invest in companies that you think will have products to sell 20 to 30 years from now. “Be sure to invest in companies that have a strong moat around them,â€ he says, meaning an advantage over competitors, “and will continue to have this moat many years from now. In addition, you have to stay the course in order to benefit from investing in the stock market.â€
The Pryors combine the tactics on the following page in their pursuit of long-term wealth building. “Turmoil in the markets is unsettling, but I try not to react,â€ says Anthony. “If I kept moving money around, in response to all the headlines, I’d probably do worse than by staying the course. We know that we won’t have enough money for our retirement unless we keep putting something away.â€
To help you stay invested, bad times or good, you should have a strategy. Here are five ways to help you stick with stocks for long-term success:
1. Dollar-cost averaging
This term refers to the process of making periodic investments of fixed amounts, perhaps every month or every quarter. As prices fluctuate, you buy more shares at lower prices and fewer shares at higher prices, resulting in a lower overall cost-per-share. In fact, most mutual funds such as Dodge & Cox Stock Fund (DODGX), PRIMECAP Odyssey Aggressive Growth Fund (POAGX), and Artisan Small Cap Value Fund (ARTVX) can be set up as automatic investment accounts. “Dollar-cost averaging is the best way to invest,â€ says Rogers. “It’s better to put money into a 401(k) plan every month, as opposed to once a year.â€
2. Asset diversification
In 2008, the financial crisis drove down the average domestic stock fund by about 38%, according to Morningstar. An investor with a portfolio 100% in stocks would have needed to gain more than 60% after that just to get even. By comparison, general bond funds fell less than 4% that year, while government bond funds gained almost 8%. An investor with a 50-50 stocks-to-bonds portfolio would have experienced a much smaller loss, an easier path to recovery, and probably a greater inclination to stay invested during the subsequent bull market. Diversifying your investments among two or more asset classes can help you stay in for the long haul. You may want to add Manning & Napier Pro-Blend Conservative Term Series, Class S (EXDAX) and FPA Crescent Fund (FPACX) to your portfolio.
If you don’t want to manage your own asset allocation, you can invest in a so-called target date fund. If you’re about 20 years from retirement, for example, you might pick a fund with a 2035 target date. “Target-date funds have been great inventions,â€ says Christine Benz, director of personal finance at Morningstar. “These funds can provide investors with an appropriate asset allocation for their time horizon, and they automatically change the mix to become more conservative as the target date approaches.â€ As an investor nears retirement, these funds hold fewer stocks and more bonds. One of the top-performers is Schwab Target 2030 Fund (SWDRX).
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