10 Stocks & ETFs For The Long Run – Investment “Longboats”

This post is now updated to reflect more emphasis on Exchange Traded Funds vs. individual equities. Although there are still a few buy and hold equities for the long run, but I have realized there is a great benefit to holding a basket of stocks with a particular mix in order to balance the risk that comes from individual securities. Some even say we should very rarely hold individual stock and opt for broad based ETF’s and funds.

Investment “Long Boats”

On the journey to FI (Financial Independence), one of the biggest questions is to identify investment vehicles or what we call investment “longboats”. There are obviously many options available that run the gambit from S&P500 Index funds, Bond funds, REITS, Stocks, etc. In many ways there are too many options. One must determine how comfortable they are with risk and their projected time frame prior to jumping into any investment.

For most folks the best way to invest is in broad based exchange traded funds or index funds that are balanced to match individual risk tolerance. Things like the Vanguard Dividend Appreciation Fund VDADX, Vanguard U.S. Growth or Vanguard Wellington Fund, etc. There are many highly rated and diversified mutual funds and exchange traded funds that give an investor exposure to the broader market and the opportunity for compound growth.

But after these types of accounts have been funded, some of us also like to identify long term companies and funds to hold and profit from. The individual stock approach takes more research and involves more risk and should be balanced with various funds.

Investment “longboats” are what carry a person and provide the leverage to build wealth over time and sustain their cost of living. in other words, without investment vehicles money would simply sit in a savings account. This is a good start, but the problem is with inflation. Inflation simply erodes the purchasing power of each dollar in a savings account. Over the course of a 20, 30, 40 or 50 year retirement period, that money will lose buying power every year. $300,000 sitting in a savings account will only have the buying power of $100,000 or lower over time and so on. This means that our money needs to make money in order to grow wealth and beat inflation. Therefore, our money must earn money. We need to invest to earn some kind of healthy interest rate. This is how we tripled net worth in 8 years using the Investing Trifecta.

A simple approach

I do not enjoy managing complicated portfolios. Therefore it can be a great strategy to find long term investments that can be acquired, added too and left alone to compound for many years to come. Warren Buffett famously has a stock holding period of ideally “forever”. In other words, find well managed companies, with a straightforward product, high moats and barriers to entry for competition, etc. Forever is not realistic for most us, but a very long time is probably the best strategy. We want to ignore day to day gyrations in the stock market if we are long term investors.

The basics: own the market through index funds

Vanguard founder Jack Bogle famously popularized the concept owning a slice of the entire market through index funds. This is the strategy for millions, including myself, for the majority of the portfolio. The key here is to dollar cost average and keep expenses low as you buys index shares every couple of weeks.See our related strategy, THE INVEStING TRIFECTA. But if you have this strategy down, it might be time to diversify into some high quality individual stocks. See, the entire market (i.e. S& P 500) is actually estimated to return a bummer decade, with experts saying perhaps a 2% return. This may not keep up with inflation and is not much better than a high yield savings account. I am still going to acquire shares of index funds over this time, but I am also diversifying into some individual stocks that pay dividends and REITS. But what stocks should be considered? Investing in individual stocks is by nature difficult and risky. Even the pros like Warren Buffett makes mistakes at times, think Kraft-Heinz! In this article we present stocks from companies that appears to have a bright future. I am also partial to income, therefore have tried to focus on stocks that pay a dividend. Over the long haul a person may want a couple things from their investments. Firstly, to allow that investment to go up in value to outpace inflation. This way your money is able to keep its buying power over time. Secondly, perhaps to earn some income along the way in a somewhat safe dividend. This can help sustain a person’s lifestyle. And thirdly, to take advantage of compound interest to allow the investment to feed on itself and grow on itself over time. This is a kind of leverage that makes your wealth building efforts easier on you over time.

Quality stocks

Although we mainly invest in ETF’s and index funds, we also like to take a small percentage of our portfolios and acquire high quality stocks. We look at several factors to compile a list of quality stocks. For example, is the stock a dividend aristocrat or king? This means that the stock persistently paid dividends over 25 or 50 plus year periods. Companies that have done this have proven that they can weather various economic environments and have a product that people need and adds value. This illustrates longevity and reliability. I also like to check if some of the great stock pickers like Buffett believe in the company. Does the company sell a product that people appear to need well into the future? Is the company large and well diversified yet at the same time have focus on core values? Does the company have a sound management team? How is revenue growing? Is debt under control and acquired for investing in innovation with a potential return on investment? What do analysts say? Will I want to buy more shares even if the share price dips at times? Are demographic trends behind some of the growth? I am not an expert with all the answers to all these questions, but it gives an idea and a framework for analyzing an investment from your own perspective. Investments and the economy tend to go up and down in cycles. We seem to get 7-10 growth years followed by a few down years.

All this said, here are what many say are high quality stocks for the long run:

1. Ark Investing ETF’s (ARKK)

PERFORMANCE: 5 year : 83% If you read our blog or listen to The Money Vikings Podcast we are regularly analyzing Ark investing. I really enjoy listening to Cathie Wood and her approach to investing. She and her team are looking out to the future and investing in innovative spaces in many industries. There are several Ark ETF’s, each with a particular focal area. Here is a description of one of our favorites, Ark Innovation:
ARK defines ‘‘disruptive innovation’’ as the introduction of a technologically enabled new product or service that potentially changes the way the world works. Companies within ARKK include those that rely on or benefit from the development of new products or services, technological improvements and advancements in scientific research relating to the areas of DNA technologies (‘‘Genomic Revolution”), industrial innovation in energy, automation and manufacturing (‘‘Industrial Innovation’’), the increased use of shared technology, infrastructure and services (‘‘Next Generation Internet’), and technologies that make financial services more efficient (‘‘Fintech Innovation’’). ARKK is an actively managed ETF that seeks long-term growth of capital by investing under normal circumstances primarily (at least 65% of its assets) in domestic and foreign equity securities of companies that are relevant to the Fund’s investment theme of disruptive innovation.
When a person invests in this fund, they are gaining exposure to Tesla, Square, CRISPR, Zillow, Spotify to name a few…  

2. Berkshire Hathaway (BRK-B)

PERFORMANCE: 5 year : 71% The iconic Warren Buffett holding company: Berkshire Hathaway. Own a share of BRK-B is like owning a high powered slice of great American businesses hand selected by the greatest investor of all time. Berkshire the company is an amazing collection of over 60 awesome American companies. I admire the man himself for his morals, intellect and values. I find him to be a role model in terms of living a good and fulfilling life. Mr. Buffett values integrity, family, moral judgment and strategic business investments. Be like Warren and love numbers and math. He also loves a Dairy Queen Blizzard and burger! Mr. Buffett has built Berkshire Hathaway into a very powerful giant in terms of investment value. There are class B shares, class B are the middle class accessible shares, the class A shares sell for about $318,000/share, as opposed to class B that sell for about $212/share. Owning class B shares is like owning a small slice of some of the most powerful American companies and the strong American economy, adding value and selling products around the world. The company is comprised of a diversified portfolio of over 60 subsidiaries. It includes insurance operations, furniture, energy, BNSF railroad, GEICO (Government Executive Insurance Company), Fruit of the Loom, Dairy Queen, etc. etc. The company holds massive stakes in Coca-Cola, Wells Fargo and Apple just to name a few.  

3. Apple (AAPL)

PERFORMANCE: 5 year : 398% DIVIDEND YIELD: 1.59% Can Apple sustain its phenomenal growth? Will they stay competitive as I Phone sales slow? Many believe so. At the end of the day they produce superior products that everyone wants. In addition, once you have one it’s hard to go back to another brand. The devices and platforms become ingrained in ones life, most likely by design! In other words, the product is sticky and hard to change. I must admit, I highly enjoy Apple products and use them every day. Apple is America’s first company to reach a TRILLION dollar market cap! Their products have and continue to fundamentally change the way we interact with the world, create, engage, communicate and on and on. The company services business just hit its first $10 billion quarter.

The introduction of 5G technology will again make these amazing machines we hold in our hands that much faster and responsive, which is hard to imagine. What’s next? They read our minds? Probably! Billions of potential customers from around the world would love to have one.

5G and The Internet of Things (IoT)

IoT refers to the now and future concept that all things will be connected via the interent and smart technologies. Everything from toasters to cars will be connected and constantly communicating and upgrading via improved software for improved performance and sensing. We now have the introduction of motion sensors, smart speakers and electronic weigh scales, thermostats and thermometers. In the next 10 years, we will see the number of IoT devices grow, which theoretically will result in greater safety, security and health. The I Phone and other Apple products intend to play a key role in this future.

The larger screen sizes should support future growth and multiple services Apple can deliver via these powerful communications tools.

 

4. Microsoft (MSFT)

PERFORMANCE: 5 year : 301% DIVIDEND YIELD: 1.74%

A deep dive into the tools Microsoft Azure provide and the benefits for developers seems to be a glimpse into Microsofts future. Azure is Microsoft’s flagship Machine Learning studio. Microsoft recently acquired GitHub, a web based software development platform. Most recently Microsoft achieved a major acceleration in growth in its commercial business – with bookings rising by 22%. Commercial is now close to 70% of revenues.

Microsoft’s success is well known. It can be difficult to evolve a venerable and iconic institution such as Microsoft. The company appears to be pulling off a strategic pivot not yet captured in its valuation. One area of interest is the Azure machine learning software and tools which displays some exciting future capabilities. Most software companies talk about their transformation and their ability to survive in the new cloud based/subscription-based word. Microsoft is actually executing the pivot. The company is growing and generating cash!

   

5. P&G Procter & Gamble (PG) (Dividend King)

PERFORMANCE: 5 year : 72% DIVIDEND YIELD: 2.8%

Procter & Gamble has increased its dividend for 62 years in a row making it a stellar dividend king. This is a period of transition and evolution for P&G, as most companies must conduct from time to time. Old brands can get stale or out of fashion in the modern world. Big smart and well managed companies must be ahead of this curve. The company has sold away dozens of under-performing brands that had exhibited slowing growth, including the sale of battery brand Duracell to Berkshire Hathaway (BRK.A) for $4.7 billion, and a collection of 43 beauty brands to Coty (COTY) for $12.5 billion.

P&G has slimmed down to just 65 brands, down from 170 previously. Will the renewed focus pay off in the long run?

 

6. Realty Income (O)

PERFORMANCE: 5 year : 16.8% compound annual return since 1994 DIVIDEND YIELD: 4.7% with 93 consecutive months of increases.
  • 16.8% compound average annual return since 1994
  • .23 cent dividend per share per month! Approx $2.79/year dividend per share.

Who owns all these buildings?

Realty Income is a solid and strong equity real estate investment trust. It is famous for its strength of performance, strong portfolio and for the monthly dividend they pay per share. As an equity REIT, this means that they own, operate and lease the commercial real estate they own. And as a REIT, they return 90% of the profits and dividends back to shareholders each and every month.

Do you ever wonder who owns the actual building you are walking in when you patronize a Walmart, Walgreens, Taco Bell, AMC movie theater, Home Depot, gas station, etc. Did you play Monopoly as a kid and want to own as many luxury properties as possible? Guess what, as an adult we can now own a small slice of many great properties via Real Estate Investment Trusts such as Realty Income (Ticker: O).

A small fraction of your purchase at many stores goes to paying rent on that property. Many times it is not the company you are patronizing that owns the property. In many cases it could be Realty Income based in San Diego, California, who own over 5,100 properties with 249 commercial tenants operating in 47 industries. Talk about diversified. And one thing people always seem to need: real estate in some shape or form.

.23 a share each and every month spins off to shareholders. The shares trade at about $79/share.

Realty Income, stock symbol “O”, is a way to gain investment exposure to the real estate sector without the headache and hassle of becoming a landlord. Realty Income is known as “The Monthly Dividend Company” because they pride themselves on their monthly dividend since 1969 that has increased over time. To me, it kind of has that feeling of collecting rent each month off your property. But again, the great thing about this kind of investment is that there is zero hassle in terms of managing properties and tenants. It is a stock that is purchased and then one can either collect the dividends each month as income or have them reinvested.

A “Dividend Machine”

Realty Income is a great example of a dividend machine that just keeps on spinning off income to investors. O generates stable and predictable income. I think of O as a sleep well at night investment vehicle. Sure, it will have its ups and downs like all stocks and companies, but many analysts see this as a great long term dividend stock to own.  

7. Johnson & Johnson (JNJ)

PERFORMANCE: 5 year : 51% DIVIDEND YIELD: 2.65%

Johnson & Johnson is a legendary dividend growth stock, with 56 consecutive years of dividend increases. J&J is a diversified healthcare company, with a pharmaceutical, consumer, and medical devices franchise.

  • JNJ seems like one of those buy and hold for the long term stocks that has paid an increased dividend for decades.
  • JNJ invests billions each year in R&D to continue to deliver new and better health products.
  • No matter the economic cycle, people will get older and require health related products and support.

Everyone uses their products

Most of us have used Johnson & Johnson products: Tylenol, Band Aids, Listerine, Aveeno, Neutrogena, Neosporin, Lubriderm…and on and on and on. Or we have taken the medicines or used the medical devices manufactured by Johnson & Johnson. In other words, if you have a human body, at some point you will need something from JNJ. We all have physical bodies that require all kinds of care and attention from cradle to grave. Therefore all along the way Johnson & Johnson (JNJ) is providing the moisturizers, lotions, wipes, machines, medicines, etc. that are needed to be clean, pain free, cure and become healthier.

Diverse revenue streams

JNJ sells products well beyond band aids and the like which only account for 18% of their business. The medical devise division accounts for 35% and pharmaceuticals account for the bulk of sales at 47%! Having various revenue streams protects the business from competition and each one has what Warren Buffett calls a “wide moat”. On a year-over-year basis, total revenue increased 12.6% (core organic revenue up 4.3%), while adjusted earnings-per-share  

8. Vanguard Dividend Appreciation Index Fund (VDADX)

  PERFORMANCE: 5 year : 14% This is a classic tried and true workhorse of an investment that just keeps on chugging up the hill. This is a highly rated basket of quality stocks that pay a dividend. The fund has low expenses at .08%. This gives an investor exposure to some of the greatest and strongest US companies: MSFT, JNJ, PG, HD, ABBT, DIS, WLMT, etc. Therefore, it is one of my largest held assets because it provides a very foundation of growth and exposure to great companies. meanwhile, it pays a constant 1.7% dividend yeild each quarter.    

9. ARK Genomics ETF

  PERFORMANCE: 5 year : 33% The ARK Genomic Revolution ETF is one of the ARK funds among this year’s best ETFs and it is, quite simply, a stellar performer among health care funds. A 2020 gain of almost 130% confirms! Over the past three years, the actively managed ARKG is higher by 226.7% while the S&P 500 Health Care Index and the Nasdaq Biotechnology Index are up 40.6% and 35.2%, respectively. ARKG is comprised of companies engaged in bioinfomatics, CRISPR, stem cell research and targeted therapeutics, among other growthier corners of the healthcare universe. Only time will tell if ARKG’s recent success will be replicated like DNA sequences, but what isn’t up for debate are sound fundamentals. For example, genomics costs are declining, making the treatments and therapies available in this space more accessible to a broader range of patients. Second, genomics companies are at the epicenters of some compelling advancements, including dark read DNA sequencing and precision medicine. Some forecasts call for the genomics segment to deliver a compound annual growth rate (CAGR) of 9.3% through 2025. If that estimate is accurate, ARKG should soar.
 

10. Vanguard Information Technology ETF (VGT)

PERFORMANCE: 5 year : 26%

We all know that exposure to the technology industry is crucial to building wealth. This is an area that has seen explosive growth and will continue to well into the future. The VGT is a great way to own slices of the tech greats: Apple, NVIDIA, Adobe, Salesforce, Microsoft, etc. This is another ETF I use as a foundational wealth building vehicle.

The sector is ripe for disruptors, therefore owning a basket of these great companies spreads out your risk of owning any individual company.

CONCLUSION

Investing by nature carries risk. Individual stock picking carries risk. Therefore if a person has all the basics down through low cost indexing funds, then perhaps it is nice to develop a dividend focused portfolio of awesome companies. *This is not investment advice to anyone.  

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