Written by: Taranjit Singh
Date: 27-11-2023
But why is long-term investing so important in 2024 and beyond? What are the criteria for choosing long-term stocks? What are the best stocks to buy and hold for the next decade? In this article, we will answer these questions and more, as we explore the best long-term investment stocks for 2024 and beyond.
What is long-term investing?
Long-term investing is a strategy that involves buying and holding stocks for more than five years, preferably for a decade or more, based on the long-term performance and prospects of the companies. Long-term investing is different from short-term trading, which involves buying and selling stocks within a short time, such as days, weeks, or months, based on the short-term fluctuations and trends of the market.
One way to understand long-term investing is to compare it to planting a tree. Planting a tree requires time, patience, and care, as you have to water it, fertilize it, and protect it from pests and diseases. Similarly, long-term investing requires time, patience, and care, as you have to research the companies, monitor their performance, and reinvest their dividends and capital gains. However, just like a tree can grow and bear fruits over time, long-term investing can grow and generate returns over time, as the companies increase their earnings and cash flows, and appreciate.
Benefits of long-term investing
Long-term investing has many benefits, such as:
1. Higher returns: Long-term investing can offer higher returns than short-term trading, as it can capture the compounding effect and the power of time. Compounding is the process of earning interest on interest, or returns on returns, which can increase your wealth exponentially over time. Time is the most valuable asset for long-term investors, as it allows them to benefit from the growth and innovation of the companies, and to overcome the volatility and downturns of the market. According to a study by Morningstar, the average annual return of the S&P 500 index, which is a benchmark for the US stock market, was 10.7% from 1926 to 20201. However, the return varied significantly depending on the holding period. For example, the return for a one-year holding period ranged from -43.3% to 52.6%, while the return for a 20-year holding period ranged from 3.1% to 17.9%. This shows that the longer you hold the stocks, the higher and more consistent your returns can be.
2. Lower risk: Long-term investing can reduce the risk of losing money, as it can diversify your portfolio and mitigate the market risk. Diversification is the process of spreading your investments across different asset classes, sectors, industries, and geographies, to reduce your exposure and dependence on any single market. Diversification can lower your risk, as it can reduce the impact of any negative event or factor that affects one market, but not the others. Market risk is the risk of losing money due to the fluctuations and downturns of the overall market. Market risk can be caused by various factors, such as economic recessions, geopolitical conflicts, natural disasters, pandemics, and policy changes. Market risk can affect the performance and valuation of your stocks, regardless of their merits. However, long-term investing can mitigate the market risk, as it can allow you to ride out the market cycles and recover from market corrections and crashes.
3. Lower costs: Long-term investing can save you money, as it can lower your transaction costs and taxes. Transaction costs are the fees and commissions that you have to pay when you buy and sell stocks, such as brokerage fees, exchange fees, and regulatory fees. Transaction costs can eat into your returns, especially if you trade frequently and in large volumes. However, long-term investing can lower your transaction costs, as it can reduce the frequency and volume of your trades, and allow you to take advantage of the free or low-cost trading platforms and services. Taxes are the levies that you have to pay to the government when you earn income or capital gains from your investments, such as income tax, capital gains tax, and dividend tax. Taxes can also reduce your returns, especially if you are in a high tax bracket and if you realize your gains in a short period. However, long-term investing can lower your taxes, as it can defer your tax liability until you sell your stocks, and allow you to benefit from the lower tax rates for long-term capital gains and qualified dividends.
Risks associated with long-term investing
Long-term investing is not without risks and challenges, such as:
1. Company risk: Company risk is the risk of losing money due to the poor performance or failure of a specific company. Company risk can be caused by various factors, such as competitive pressures, technological disruptions, regulatory issues, legal disputes, accounting scandals, and management changes. Company risk can affect the earnings and cash flows of your stocks, as well as their reputation and trustworthiness. Company risk can be mitigated by conducting thorough research and analysis of the companies you invest in, and by monitoring their financial reports and news updates regularly.
2. Opportunity cost: Opportunity cost is the cost of missing out on a better alternative because of a decision you made. Opportunity cost can be a challenge for long-term investors, as they may have to forego some short-term gains or opportunities in favor of long-term returns. Opportunity cost can also lead to regret and dissatisfaction, especially if you see other stocks or asset classes performing better than your stocks. Opportunity cost can be overcome by having a clear goal and strategy for your long-term investing, and by being confident and satisfied with your choices.
Criteria for choosing long-term stocks
When choosing long-term stocks, you should consider the following criteria:
1. Company’s financial health: The company’s financial health is the measure of its ability to generate and sustain profits, cash flows, and growth, as well as to meet its financial obligations and commitments. The company’s financial health can be assessed by using various financial ratios and indicators, such as the earnings per share (EPS), the free cash flow (FCF), the return on equity (ROE), the debt-to-equity ratio (D/E), and the current ratio. For example, a company with a high EPS, a high FCF, a high ROE, a low D/E, and a high current ratio, is likely to have a strong financial health, and a competitive advantage over its peers. One way to check the company’s financial health is to use the Bing search tool2, which can provide you with the financial statements, ratios, and analysis of the company.
3. Management quality: Management quality is the measure of the competence and integrity of the company’s management team, in terms of vision, strategy, execution, and governance. The management quality can be determined by using various sources and criteria, such as the management biography, the track record, the reputation, and the stakeholder feedback. For example, a company with a visionary, strategic, efficient, and ethical management team, is likely to have a clear direction, a competitive edge, and a loyal following. One way to check the management quality is to use the question-answering results, which can provide you with information and opinions on the company’s management team.
4. Dividend history: The dividend history is the record of the dividends that the company has paid to its shareholders over time, in terms of frequency, amount, and growth. The dividend history can be indicative of the company’s profitability, stability, and confidence, as well as its shareholder friendliness and generosity. The dividend history can be verified by using various sources and tools, such as the company website, the annual report, the dividend calendar, and the dividend calculator. For example, a company with a consistent, high, and growing dividend history, is likely to have a strong and reliable income stream, and a high shareholder value. One way to check the dividend history is to use the following steps:
Visit the company website and look for the investor relations section, where you can find the dividend information, such as the dividend policy, the dividend history, and the dividend dates.
- Download the annual report and look for the financial statements, where you can find the earnings per share (EPS), the dividend per share (DPS), and the payout ratio, which are the key metrics for evaluating the dividend performance and sustainability of the company.
- Use a dividend calendar, such as the one provided by Bing, to find out the upcoming dividend dates, such as the ex-dividend date, the record date, and the payment date, which are the important dates for determining the eligibility and receipt of the dividend.
- Use a dividend calculator, such as the one provided by Bing, to calculate the dividend yield, the dividend growth rate, and the dividend reinvestment plan (DRIP), which are important factors for measuring the return and compounding effect of the dividend.
Best Stocks for Long-Term Investment
Based on the criteria of the company’s financial health, the industry prospects, the management quality, and the dividend history, some of the best stocks to buy and hold for the long term, based on their past performance, future potential, and current valuation, are:
1. Nvidia (NVDA): Nvidia is a leading technology company that designs and manufactures graphics processing units (GPUs) and system-on-a-chip (SoC) products for various applications, such as gaming, data centers, artificial intelligence, autonomous vehicles, and edge computing. Nvidia has a strong competitive advantage, as it dominates the GPU market with over 80% market share, and has a loyal customer base of gamers, developers, and researchers. Nvidia also has high growth potential, as it can capitalize on the increasing demand for high-performance computing, cloud gaming, and AI solutions. Nvidia has a high-quality financial profile, as it has a high ROE of 37%, a high ROIC of 32%, a low D/E of 0.4, and a high FCF of $6.8 billion. Nvidia also has a reasonable valuation, as it trades at a forward P/E of 46, a P/B of 24, a P/S of 23, and a P/FCF of 77. Nvidia also has a consistent and growing dividend history, as it has paid and increased its dividend for the past 10 years, with a current dividend yield of 0.08%, a dividend growth rate of 14.6%, and a payout ratio of 11.4%.
2. Costco Wholesale (COST): Costco is a leading retail company that operates a chain of warehouse clubs that offer a wide range of products and services, such as groceries, electronics, furniture, appliances, optical, pharmacy, travel, and gas, at low prices and high quality. Costco has a strong competitive advantage, as it has a loyal membership base of over 110 million members, who pay an annual fee to access its warehouses and enjoy its value proposition. Costco also has high growth potential, as it can increase its membership penetration, expand its e-commerce presence, and enter new markets, especially in Asia and Europe. Costco has a high-quality financial profile, as it has a high ROE of 25%, a high ROIC of 17%, a low D/E of 0.6, and a high FCF of $6.5 billion. Costco also has a fair valuation, as it trades at a forward P/E of 38, a P/B of 11, a P/S of 1, and a P/FCF of 34. Costco also has a consistent and growing dividend history, as it has paid and increased its dividend for the past 17 years, with a current dividend yield of 0.76%, a dividend growth rate of 12.9%, and a payout ratio of 28.9%.
3. Novo Nordisk (NVO): Novo Nordisk is a leading healthcare company that specializes in the development and production of drugs and devices for the treatment of diabetes, obesity, and other chronic diseases. Novo Nordisk has a strong competitive advantage, as it has a dominant position in the insulin market, with over 40% market share, and a robust pipeline of innovative products, such as oral semaglutide, Rybelsus, and Ozempic, that offer better efficacy and convenience for patients. Novo Nordisk also has high growth potential, as it can benefit from the rising prevalence of diabetes and obesity, especially in emerging markets, where the penetration of its products is low. Novo Nordisk has a high-quality financial profile, as it has a high ROE of 72%, a high ROIC of 67%, a low D/E of 0.2, and a high FCF of $7.4 billion. Novo Nordisk also has a reasonable valuation, as it trades at a forward P/E of 28, a P/B of 18, a P/S of 9, and a P/FCF of 32. Novo Nordisk also has a consistent and growing dividend history, as it has paid and increased its dividend for the past 22 years, with a current dividend yield of 1.64%, a dividend growth rate of 9.8%, and a payout ratio of 46.5%.
How to Buy and Hold Stocks
If you are interested in buying and holding stocks for the long term, here are some steps and tips that can help you:
Open a brokerage account: A brokerage account is an account that allows you to buy and sell stocks and other securities, through a broker or a platform, that acts as an intermediary between you and the market. There are different types of brokerage accounts, such as online brokers, full-service brokers, discount brokers, and robo-advisors, each with its features and fees. You should choose a brokerage account that suits your needs and preferences, and that offers low commissions, a user-friendly interface, and reliable service. Some of the most popular and trusted brokerage accounts are Fidelity, Charles Schwab, TD Ameritrade, E*TRADE, and Robinhood.
1. Research the stocks: Before you buy any stock, you should do your homework and research the company, the industry, and the market, to make sure that you are making an informed and rational decision. You should use various sources and methods, such as the company website, the annual report, the financial statements, the analyst reports, the news articles, and the stock screener, to gather and analyze the information and data about the company. You should also use the criteria of the company’s financial health, the industry prospects, the management quality, and the dividend history, to evaluate and compare the stocks, and to identify the best ones for your long-term investing.
2. Buy the stocks: Once you have selected the stocks that you want to buy, you can place your order through your brokerage account, by specifying the number of shares, the price, and the type of order, such as market order, limit order, stop order, or trailing stop order. You should also consider the timing and frequency of your purchases, and use strategies such as dollar-cost averaging, which is the process of buying a fixed amount of stock at regular intervals, regardless of the price, to reduce the impact of volatility and to average out your cost basis. You should also diversify your portfolio, by buying 15 to 20 stocks from different sectors, industries, and geographies, to reduce your risk and exposure to any single market.
3. Hold the stocks: After you buy the stocks, you should hold them for the long term, and avoid selling them unless there is a fundamental change in the company or the market, or you need the money for your goal. You should also reinvest your dividends and capital gains, to increase your returns and compounding effect. You should also ignore the short-term noise and volatility of the market, and focus on the long-term performance and prospects of your stocks. You should also check and rebalance your portfolio at least once a year, to adjust your asset allocation and weightings of your stocks according to your goal, risk tolerance, and market conditions.
Steps to Get Started
If you are ready to start your long-term investment journey, you can follow these simple steps:Define your goal and time horizon: The first step is to determine why you want to invest, and how long you are willing to invest for. Your goal could be saving for retirement, buying a house, or funding your child’s education. Your time horizon could be 10 years, 20 years, or more. Your goal and time horizon will help you decide how much money you need to invest, and how much risk you can tolerate.
Choose your asset allocation: The next step is to decide how to allocate your money among different asset classes, such as stocks, bonds, cash, and alternatives. Your asset allocation will depend on your risk tolerance, return expectations, and diversification needs. Generally, stocks offer higher returns but higher risk, while bonds offer lower returns but lower risk. Cash and alternatives can provide liquidity and stability. You can use a tool like the Bing asset allocation calculator1 to find out the optimal asset allocation for your profile.
Select your investments: The third step is to select the specific investments that match your asset allocation and investment criteria. You can choose between individual securities, such as stocks and bonds, or pooled funds, such as mutual funds and exchange-traded funds (ETFs). You can also use a combination of both. You should look for quality, value, and growth stocks that have strong financial health, industry prospects, management quality, and dividend history. You can use a tool like the Bing stock screener2 to filter and compare the stocks that meet your requirements.
Monitor and rebalance your portfolio: The final step is to monitor and rebalance your portfolio periodically, to ensure that it stays aligned with your goal, risk tolerance, and market conditions. You should review your portfolio at least once a year, and make adjustments if necessary. You can use a tool like the Bing portfolio tracker to track the performance and value of your portfolio, and to get alerts and recommendations on how to rebalance your portfolio.
Key Takeaways
- Long-term investing is a strategy that involves buying and holding stocks for more than five years, preferably for a decade or more, based on the long-term performance and prospects of the companies.
- Long-term investing has many benefits, such as higher returns, lower risk, and lower costs, but it also has some risks and challenges, such as company risk, opportunity cost, and market risk.
- Long-term investing requires a clear goal and time horizon, a suitable risk tolerance and asset allocation, a diversified portfolio of quality, value, and growth stocks, and a buy-and-hold mentality.
- Some of the best stocks to buy and hold for the long term, based on their past performance, future potential, and current valuation, are Nvidia, Costco, and Novo Nordisk, as they have strong competitive advantages, high growth potential, and consistent and growing dividend histories.
- To buy and hold these stocks, you should follow some steps and tips, such as opening a brokerage account, researching the stocks, buying the stocks, and holding the stocks.
Long-term investing is a strategy that involves buying and holding stocks for more than five years, preferably for a decade or more, based on the long-term performance and prospects of the companies. Short-term investing is a strategy that involves buying and selling stocks within a short period, such as days, weeks, or months, based on the short-term fluctuations and trends of the market.
What are the advantages and disadvantages of long-term investing?
How to choose the best stocks for long-term investing?
To choose the best stocks for long-term investing, you should consider the following criteria: the company’s financial health, the industry prospects, the management quality, and the dividend history. You should also use various sources and tools, such as the company website, the annual report, the financial statements, the analyst reports, the news articles, and the stock screener, to gather and analyze the information and data about the company.
How to buy and hold stocks for long-term investing?
Conclusion
Long-term investing is a strategy that involves buying and holding stocks for more than five years, preferably for a decade or more, based on the long-term performance and prospects of the companies. Long-term investing has many benefits, such as higher returns, lower risk, and lower costs, but it also has some risks and challenges, such as company risk, opportunity cost, and market risk. Long-term investing requires a clear goal and time horizon, a suitable risk tolerance and asset allocation, a diversified portfolio of quality, value, and growth stocks, and a buy-and-hold mentality.
Some of the best stocks to buy and hold for the long term, based on their past performance, future potential, and current valuation, are Nvidia, Costco, and Novo Nordisk, as they have strong competitive advantages, high growth potential, and consistent and growing dividend histories. If you want to buy and hold these stocks, you should follow some steps and tips, such as opening a brokerage account, researching the stocks, buying the stocks, and holding the stocks.
We hope you enjoyed this article and learned something new and useful about long-term investing. If you want to learn more about long-term investing, you can visit some of the resources and references that we have provided below. Thank you for reading, and happy investing!