As our macro expert, Eric Fry, writes below, “most of us panic from time to time about securing a comfortable, financially sound retirement.”
That’s certainly true for me.
Part of the challenge is finding the balance between investing in a stock with the firepower to grow wealth and help reach financial goals…yet not having the stock be so volatile that the ride is impossible to stomach.
This points us toward something called “Forever Stocks.”
In Eric’s essay below, he begins a series focused on helping you secure a financially-sound retirement. He dives into the topic of Forever Stocks, naming a handful, and highlighting their ability to generate enormous wealth – even through painful stretches in the market.
If retirement is on your radar, today’s essay is for you. I’ll let Eric take it from here.
Have a good weekend,
My Best Retirement Play: Forever Stocks
By Eric Fry
Most of us share one common concern. And it doesn’t matter what’s happening on Wall Street or Main Street or in Washington DC. Most of us panic from time to time about securing a comfortable, financially sound retirement.
Retirement has become a four-letter word in recent years, with pensions being cut, flimsy employer promises to contribute to a 401(k), and sluggish income growth. The generation of reliable, “defined benefit” pension benefits is coming to an end. The rest of us will have to carry the load ourselves, based on our own savings and investment plans.
For most folks, the picture isn’t as pretty.
So today and in a Smart Money in the near future, I want to outline a solid plan to bolster your retirement savings.
These are the kinds of stocks you’ll want to consider buying and holding. And I think once I explain the logic behind these types of plays, you’ll give your broker a call tomorrow morning.
Let’s get started…
Buying Great Stocks at the Worst Time
You may have heard of this concept before: “Forever Stocks.”
They’re stocks that you hold through good times and bad – especially if they pay a steadily rising dividend.
You should think of these investments as your core holdings. Treat these Forever Stocks as your “Elite 8” or “Top 10” – or whatever number you decide on. In my experience, eight to 10 stocks are ideal. In total, these stocks should represent about 25% to 35% of your total portfolio.
Long-term survival does not rely just on a strong defense; it also requires an effective offense. That’s where Forever Stocks come into play.
Further, if we decide in advance that one small piece of our portfolio remains sacrosanct, we can more easily adjust the rest of our holdings.
Before we get into what type of securities are Forever Stocks, I’ll show you why today – or any day – is a good time to buy them. To do that, let me share something a wise old man once told me: “There’s no wrong way to say, ‘I love you.'”
Similarly, there’s no wrong way to buy a Forever Stock.
That said, timing is important in both love and finance. Saying “I love you” after stumbling drunkenly through the front door at 4 a.m. is less ideal than saying it across a candlelit dinner table.
In finance, buying a great stock near a major peak is less ideal than buying it near a major low. But the investment gains that can accrue from buying an excellent stock at the worst time can be astonishing.
Timing is important, but it’s not everything. That’s my point here.
Consider an example from the past…
When Misery Becomes Delight
Imagine, for instance, that you had purchased shares of Amazon.com Inc. (AMZN) on December 10, 1999, at the very peak of the dot-com bubble… and then continued holding those shares until today. That 22-year investment would have produced a total return of more than 4,450.09% – or 19 times the return of the S&P 500 over that time frame.
But this delightful long-term result reveals nothing about the short-term pain you would have endured. Within two years of making your buy, Amazon shares would have plummeted 95%. Nine years later, your shares would still be down more than 50%.
But one decade after your investment, Amazon finally would have moved into the black… and then continued soaring from that point forward.
Obviously, I cherry-picked that success story. But I could just as easily have selected examples from my personal history. Many, many times, my most outstanding investments started off miserably…
In 1999, I produced an institutional research product in which I recommended buying shares of Royal Garden Resorts (now known as Minor International), a Thai hospitality company.
Two years after I recommended it, the stock was down 37%. But I held on. And despite this dismal start, Royal Garden went on to post gains of:
- 100% after three years…
- 500% after six years…
- 1,000% after seven years…
- 2,000% after eight years…
- And 2,888% after nine years.
Also in 1999, I recommended buying shares of Adidas AG (ADDYY), the German sneaker manufacturer. It, too, plummeted shortly after my recommendation. Two years later, the stock was still down 50%.
But after 18 years, the stock had become a 10-bagger – up more than 1,000%. That result was six times better than what the S&P 500 delivered over the same time frame.
In hindsight, I recommended both of these stocks at “the wrong time.” And yet, both of them went on to produce large, market-beating returns.
So, if you’ve got a great stock that’s performing poorly, think twice before hitting the “eject” button.
Buying a great stock at the worst possible time can be one of the best investments you ever make.
What type of security is a Forever Stock?
I’m talking about dominant, world-class businesses like Amazon, Nike Inc. (NKE), Walmart Inc. (WMT), and Microsoft Corp. (MSFT).
While there’s no set definition of a world-class business, I believe they share at least four critical traits.
In a Smart Money in the near future, I’ll lay out those four traits. Plus, I’ll show you “secret formula” the top investors in the world use to find these stocks – and a “hidden benefit” of owning a basket of world-class stocks.
Meanwhile, I recently released a report featuring four of my top 5G stocks.
Any one of them has the potential to become a Forever Stock.
To find out how to get that report, click here.
And I’ll see you back here soon.