If you're in your 50s, history says that your best investment alternative is the stock market. You're still too young to put most of your money into bonds and Treasury bills that don't typically generate the returns that stocks do. But which stocks should you buy?
Google parent Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL), Interactive Brokers Group (NYSEMKT:IBKR), and Align Technology (NASDAQ:ALGN) look like three great choices for investors in their 50s to consider buying. Here's why.
Alphabet stock has more than tripled in value over the last five years. It has also been one of the most successful initial public offerings (IPO) of all time, with shares soaring more than 1,700% since the company (known then as Google) first traded publicly in 2004.
Alphabet's Google search engine continues to dominate the market. According to Net Market Share, Google commanded a global market share of nearly 80%. Search engine traffic is growing, thanks primarily to higher volumes of mobile searches. That means more advertising revenue for Alphabet, which made $90.3 billion in total revenue last year -- 88% of which stemmed from advertising.
This impressive financial performance has enabled Alphabet to fund other potentially game-changing efforts that could benefit investors over the long run. Alphabet is well positioned in several technology trends that could shape the future. It owns Waymo, a leader in self-driving car technology. Alphabet has made the most acquisitions in the key field of artificial intelligence than any other company. It's also a leader in virtual reality (VR) with its inexpensive Google Cardboard product (made out of, you guessed it, cardboard) that turns many smart phones into VR devices.
Interactive Brokers Group
Interactive Brokers Group is an automated global electronic broker known for its low trading costs and easy-to-use online trading platform. The company has also been a market maker (which quotes buy and sell prices for stocks and other financial instruments and seeks to make a profit on the bid-offer spreads). However, Interactive Brokers is exiting this business to focus on the less volatile brokerage business.
The share price of Interactive Brokers is up more than 150% over the past five years. However, the stock didn't generate great returns in 2016 and is underperforming the broader market so far this year. So why is Interactive Brokers a smart pick for investors in their 50s?
Over the next 20 years or so, we'll see the greatest generational transfer of wealth in history. Baby boomers are expected to pass down roughly $30 trillion in assets to their children and grandchildren. It's reasonable to conclude that much of that wealth will be invested in stocks. And because these younger generations inheriting all this money are more accustomed to using technology to do things themselves, Interactive Brokers stands poised to be a prime beneficiary of this huge wealth transfer.
Align Technology makes and sells clear dental aligners and intraoral scanners. Its stock has more than quadrupled over the last five years and is up more than 50% so far in 2017 -- fueled largely from record revenue in the first quarter and a surge in sales for its Invisalign clear aligners.
There are several reasons for investors to like Align Technology's future prospects. Invisalign is an option for roughly half of the worldwide cases of malocclusion (misalignment of teeth when biting or chewing), yet Align has captured less than 10% of that market. International expansion is one way that the company should be able to grow.
Over the longer run, though, the biggest opportunity for Align Technology is expanding the market through innovation. That's something the company thinks it will be able to do. Align believes it can grow the overall market for clear aligners by 50% in the next couple of years or so through introducing new aligners that can treat more severe forms of malocclusion.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keith Speights owns shares of Alphabet (A shares). The Motley Fool owns shares of and recommends Align Technology, Alphabet (A shares), and Alphabet (C shares). The Motley Fool recommends Interactive Brokers. The Motley Fool has a disclosure policy.