If you are just starting to invest, you may be feeling overwhelmed. There are thousands of stocks to choose from, and it can seem impossible to know which ones are right for you.
To guide you on your path to investing success, three experienced Motley Fool contributors suggest three options that are sure to be winners. You can’t go wrong with any of them, as long as you keep them for the long term.
Simplify your life: buy the world
Chuck Saletta: Investing in stocks can be a great way to build wealth over time. The problem is, not all actions are winners. Indeed, history is littered with the carcasses of companies that have not been able to maintain themselves over the long term.
Therefore, if you want to make money by investing in stocks, you need to either spend time researching and monitoring companies, or find a way to invest that does not require all of that effort. This is where buying broad based index funds can come in handy. They allow you to get long term market performance without all the research.
With regard to index funds, the Vanguard Total World Stock Index ETF (NYSEMKT: VT) stands out as having a particularly broad lens. It aims to track a large index that encompasses large, mid and small cap companies from around the world. Because this exchange-traded fund (ETF) casts such a wide net, investors are poised for returns based on the overall global economy, not the performance of any stock or country.
Combine that reach with its tiny 0.08% expense ratio, and this ETF is a great way to get global market returns without the effort or risk associated with selecting specific stocks.
Of course, you are still exposed to the overall risk of the market and there is no guarantee that the market will rise. That’s why the Vanguard Total World ETF – like any equity-focused investment – should only be used for money that you don’t plan to spend for at least the next five years. With this longer term time frame, you can handle the ups and downs of the market better, as you will not be putting your immediate needs at risk due to the daily volatility inherent in stocks.
A true digital money maker
Eric Volkman: One class of stocks that I have always found appropriate for newbie investors is Real Estate Investment Trusts (REITs). A REIT is a company that invests its money in properties, the mortgages behind them, or (in relatively rare cases) a combination of the two. There are many REITs out there, and many of them specialize in one or only a few types of real estate.
Essentially, a REIT is a real estate fund in which investors place their trust in an experienced manager who knows how to extract hefty profits from a set of real estate assets.
Dividends are one of the very appealing aspects of REITs – especially for people new to their equity investing life who are looking for a reliable return on their money. REITs are legally required to pay at least 90% of their net income in this form of shareholder compensation.
A REIT that I bought recently for my IRA, and which I think should be considered by anyone new to stocks, is Digital Real Estate Trust (NYSE: DLR). This company belongs to the “specialized REIT” category, and its specialty is data centers (essentially, warehouses where banks of computer servers are stored) and associated assets. .
Unlike the retail industry, which has been battered by the migration to e-commerce (not to mention the economic damage from the coronavirus pandemic), data centers will only see continued growth in demand.
After all, it is these facilities that are helping to continue the digital revolution. Your favorite online retailer almost certainly has a handful of servers spread across various data centers to power their digital efforts.
As a result, the growth of Digital Realty has been compelling. 2020 revenues topped $ 3.9 billion, a year-over-year increase of nearly 23%. There aren’t many REITs that can boast of this kind of improvement. “Core” (i.e. adjusted) operating funds (FFOs are a key measure of REIT profitability) increased 16% to almost $ 1.7 billion, or 6%. , $ 22 per share. The company is forecasting an increase of at least $ 6.40 in 2021.
Meanwhile, Digital Realty has managed to increase its dividend every year for 16 consecutive years. During that time, his annual payout more than quadrupled, from $ 1 per share to $ 4.64. This results in a respectable dividend yield of 3.3%.
Digital Realty is a reliable and experienced operator who focuses on a constantly growing sector of the economy and regularly returns a good dividend to its shareholders. So this is definitely a good deed for a beginner – or any investor, really, who enjoys this winning combination.
A stock for centuries
Barbara Eisner Bayer: My two colleagues recommended starting with different baskets of stocks, and both recommendations are great ideas for beginners. But what if you want to dip your toes in the market waters and buy an individual stock? In this case, you can’t go wrong with Johnson & johnson (NYSE: JNJ).
First, if you are just starting to buy stocks, there are some guidelines to follow. It’s a good idea to start with a company you know, and JNJ hits the mark. Have you ever heard of dressings, Tylenol and Listerine? Yes … they are all made by JNJ, with an impressive product list you use every day.
Second, determine if the business is stable. J&J has been around for over 130 years, so there’s almost no chance it won’t be here in your lifetime. He is also a Dividend King, having paid and increased his dividend for 58 consecutive years. It’s an impressive record that doesn’t seem to be slowing down any time soon.
Third, what are the company’s growth prospects? For Johnson & Johnson, the sky is the limit, as the consumer division is only a small part of its future.
For starters, there’s its coronavirus vaccine, which recently received emergency use clearance. Even though it was only 85% effective, which was a bit lower than vaccines produced by its competitors, it only requires one dose, while the others require two. This has the potential to make it easier to get into people’s arms. In addition, it is easier to store, which makes it easier to supply worldwide.
But it’s the other divisions of JNJ that have the potential to help the business – and the inventory – continue to grow. Its consumer health, medical device and pharmaceutical segments combined to generate $ 82.6 billion in revenue in 2020 – and that included a slowdown due to the coronavirus pandemic. The company is developing therapies that target various diseases, including leukemia, Crohn’s disease and prostate cancer, which are in advanced clinical trials. Add to that a pipeline of 50 potential therapies, and you have dazzling growth potential on the way.
If you’re looking for a starting stock, you can’t go wrong with Johnson & Johnson. While that in and of itself does not make you a millionaire, it can certainly be the basis of a portfolio that will.
This article represents the opinion of the writer, who may disagree with the official recommendation position of a premium Motley Fool consulting service. Were motley! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
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