- When it comes to growing your retirement funds, putting money into stocks can be a savvy move if you’re smart about how you invest.
- The name of the game is focusing on companies with robust financials, competitive advantages that’ll keep them at the top of their industries, and delicious dividend payments that’ll earn you extra income.
- Spreading out your investments across sectors and asset types will smooth out the stock market’s inevitable bumps and dips along the way.
Now, history shows that stocks have been all-star performers when it comes to investment returns over the long-term. Just look at the last century–stocks have crushed every other asset class out there. However, the past’s glorious performance is never a promise of the future’s gains. Still, carefully selecting stocks combined with proper diversification might pay off for patient folks who take the long view. Thanks to the snowball effect of compound growth over decades, regularly investing even modest amounts in stocks could swell into a monster nest egg when retirement finally rolls around.
Select Stocks With Robust Fundamentals
When scoping out potential stocks, peek under the hood for traits like steady earnings expansion, reasonable valuations, top-tier leadership calling the shots, and durable competitive edges that’ll keep rivals at bay. Stocks of businesses with trusted brands, legions of loyal customers, along with stable profits from products and important services tend to power through volatile markets. Stocks dishing out regular dividend payments can deliver extra income and cushion your portfolio during stock market dips.
Rather than load up on just one single company or sector, spread your stock picks across industries – technology, healthcare, consumer staples, financials, energy, industrials, and more. Blending in other assets like bonds, real estate, commodities, and cash further pumps up your diversification for smoother sailing. Revisiting your asset mix every year or so and rebalancing back to your targets keeps your portfolio’s risk profile on course for the long run.
Stock Picking Basics
Look for stocks of companies exhibiting steady earnings growth over time, even through tough economies. Earnings reflect a company’s profitability. Increasing earnings signal that a company is boosting revenues and successfully controlling costs. Steady growth provides clues to the health of the underlying business. Seek out stocks trading at reasonable valuations compared to earnings, cash flow, book value, sales, and future earnings growth potential. Avoid overpaying. Stocks with high valuations have an elevated risk of decline if the company stumbles. Find reasonably priced stocks with the potential for multiple expansions over time as the business grows.
Strong, shareholder-friendly management is key as well. Look for experienced leaders with proven track records of allocating capital wisely to fuel growth whether through expanding operations, entering new markets, rolling out new products and services, or acquiring competitors. Disciplined capital allocation boosts profitability. Additionally, consider stocks boasting durable competitive advantages that carved out a profitable niche and protect against rivals stealing market shares. This can be scale, brand, patents, high customer switching costs, network effects, or cost advantages. A strong competitive edge sustains pricing power and profit margins.
Summary
Find stocks operating in growing industries and which are expanding their market share. Rising demand for the company’s products or services boosts earnings. Identify emerging customer needs that the company is uniquely positioned to fill. Don’t overexpose yourself to any one company or sector. Diversification is critical for managing risk. Strive for a balanced portfolio across industries like technology, healthcare, consumer defense, financials, communication services, utilities, industrials, materials, energy, and real estate.