To win in the stock market, you may think you need to make exceptional moves. Some examples include finding one or two under-the-radar stocks today that will deliver explosive growth tomorrow, or filling your portfolio with companies forging the way in the hottest areas, from artificial intelligence (AI) to gene editing -- and forgetting about the "boring" companies that have been around for years.
But those techniques actually won't put you on the path to long-term success. Of course, it's great to add a few under-the-radar stocks to your portfolio, and companies leading the way in new technologies could make compelling buys too. But investing success generally doesn't happen overnight or come from buying only one or two stocks or involve investing only in hot areas.
And this actually is fantastic news, because you don't have to jump through many hoops to become a standout investor -- in fact, you just have to be average. What does that mean? Let's take a closer look.
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Invest in companies you know well
By being average, I mean a few things. You can focus your investments on a core selection of companies that you probably know well just through your daily routine. You don't have to start off with an enormous amount of money to build your portfolio. And finally, you don't have to move in and out of positions frequently according to what economic news or technical analysis charts show.
So, for example, you could buy some very well-known companies such as the five in the chart. As you can see, they've all delivered double-digit or triple-digit gains over the past decade.
Two of them, Coca-Cola (KO) and Johnson & Johnson (JNJ -0.46%), also offer you a solid track record of dividend growth. As Dividend Kings, these companies have increased their payments annually for more than 50 years. These stocks' total return, which includes dividend payments, shows dividends have added significantly to your gains in them over time -- bringing the increase into the triple digits.
These companies I've selected in these two charts haven't delivered enormous gains overnight, but instead have progressively increased over time.
You would have gained more in a short time period if you'd invested in an early hopeful in the coronavirus vaccine race, such as Novavax or even vaccine market leader Moderna -- but those increases haven't lasted.
This doesn't mean you shouldn't buy shares of companies that may take off due to a hot trend. But if you do, do so with caution, and always as part of a diversified portfolio -- filled with steady stocks that have proven themselves over time.
You don't need a fortune to get started
Now let's talk money. You don't have to invest a fortune today to score a stock market win. Invest what you can afford, and ideally, commit to adding to your portfolio monthly.
Fractional shares offer you the opportunity to get in on top companies even if your budget is limited. And the effect of compounding should grow your investment in a stock over the long haul.
Finally, choose stocks with great long-term prospects and hang on to them for a decade -- or longer. There's no need to jump in and out of positions on a daily basis to succeed in the stock market. You're more likely to benefit from a company's growth over time and its long-term stock performance than to select just the right stock and enter and exit the position at the perfect moment. The former is the reality of life as an average investor, while the idea of making millions on just one move is an uncommon event -- like winning the lottery.
Sure, it's exciting to imagine your portfolio soaring overnight on one perfect stock pick, but what's even more exciting is you don't have to hope and wish for that to happen. By simply following the steps of an average investor, you're much more likely to score a stock market win -- and one that will last.
