Finding solid, growing companies isn't rocket science. Terrific companies are all around you, and every now and then, they'll trade at reasonably attractive prices.
Even in unexciting industries such as retail or beverages, some stocks can perform phenomenally well. Consider Chico's FAS, for example, which has returned an average of 44% annually during the past decade -- enough to turn $5,000 into nearly $190,000. Drink maker Hansen Natural returned an average of 73% each year over that same period. These are, admittedly, extreme examples, and relatively few people were aware of these firms a decade ago.
You don't have to find formerly small, esoteric companies to do well, though. Apple, for example, has increased at an average annual rate of 38% over the past decade. But if you're not confident in your stock-picking abilities, you don't have to go beyond your comfort zone to find great investments.
Consider funds
You'll find more than 7,000 mutual funds out there, and yes, many of them stink.
But there are also plenty of top-notch funds with smart managers, reasonable fees, and solid track records. Don't think of opting for mutual funds as any kind of capitulation. I've recently been moving big chunks of my own nest egg into mutual funds, and it's not because I'm throwing in the towel on my hopes for high returns. It's more a matter of realizing there are people out there who can make my money grow faster than I can on my own.
In fact, they can double your money just as effectively as many top stocks. Consider the 10-year average annual returns of these mutual funds and some of their recent top holdings:
|
Fund |
10-Year |
Recent Holding |
|---|---|---|
|
CGM Realty (CGMRX) |
19.7% |
Freeport-McMoRan Copper & Gold |
|
Bridgeway Ultra-Small Company (BRUSX) |
17.8% |
Dawson Geophysical |
|
T. Rowe Price Media & Telecommunications (PRMTX) |
17.8% |
XM Satellite Radio |
|
Julius Baer International Equity (BJBIX) |
16.9% |
Vodafone |
|
Calamos Growth (CVGRX) |
16.3% |
Transocean |
|
Vanguard Health Care (VGHCX) |
14.6% |
Pfizer |
|
Fidelity Select Brokerage (FSLBX) |
13.6% |
UBS |
|
Legg Mason Partners Aggressive Growth (SHRAX) |
11.6% |
UnitedHealth |
See? Some funds out there do boast strong long-term returns. All it takes is an average annual return of 14.9% to double your money in five years, and 12.3% to double it in six.
Should you snap up shares of the above funds? No -- at least, not just because they're in that table. For one thing, some are closed to new investors. You must also research any fund before investing. Check to see how steep its fees are. Read up on the managers to make sure they've been in place for at least a few years, and that you like their investing philosophies and approaches. Ideally, they should have a significant stake in the fund themselves. Beware of sector funds with great records, too -- an energy-oriented fund may do well in one decade, only to stagnate in another.
Choose carefully
If you'd like to jump-start your research, let us help you. We'd love to introduce you to some market-beating funds with great managers, low fees, and outstanding track records via our Motley Fool Champion Funds investing service. You can try it for free (with no obligation and full access to all past issues) and see which funds our analyst Shannon Zimmerman recommends -- and why.
Together, his picks have gained an average of 36% versus 24% for their benchmarks. Shannon also maintains three model portfolios, in which he lists appropriate funds for conservative, moderate, and aggressive investors.
Or learn much more in these articles:
This article was originally published on July 28, 2006. It has been updated.
Longtime Fool contributor Selena Maranjian owns shares of Chico's FAS. Pfizer, UnitedHealth, and Vodafone are Motley Fool Inside Value recommendations. Dawson Geophysical is a Motley Fool Hidden Gems recommendation. UnitedHealth is a Motley Fool Stock Advisor recommendation. The Motley Fool is Fools writing for Fools.
