For most of us, the best kind of long-term portfolio balances different kinds of stocks, creating a healthy mix of investments that can prosper in any kind of market. Let's examine several different categories of stocks, and the advantages they can bring to your holdings.
Steady as she goes
Dividend payers -- many of which are stable, larger-cap companies -- offer ballast to any portfolio. Through booms and busts, the underlying companies will keep paying you as long as they remain healthy.
The best dividend payers not only increase those payouts from year to year, but also offer stock-price appreciation on top of all that. Thus, they give your portfolio fairly reliable income (which you can live off of if you're older, or reinvest in more stock if you're younger) while boosting its value over time. And the very best of these companies keep their payout ratio relatively low -- below 70%, ideally -- ensuring that they're not devoting too much of their income entirely to paying their dividends.
Need a few examples to kickstart your own research? Consider these solid dividend stocks:
5-Year Avg. Annual Dividend Growth
Procter & Gamble
Data: Motely Fool CAPS.
Adding smaller, faster-growing companies atop your core of larger dividend payers can can help your portfolio's returns outpace the market average. But first, you'll have to successfully sort potential superstars from eventual flops -- which means you'll need to look more closely at the future than the past.
To find compelling fast growers, look for companies that are disrupting the expected way of doing things, and creating whole new markets as a result. Ideally, they should have sustainable competitive advantages: unique offerings, patents, or high barriers to entry in their fields.
Rising stars often command rising prices, so growth stocks that trade at P/E ratios or price-to-cash-flow ratios below their industry averages can give you an even better deal. Still, even if a promising stock trades for multiples greater than its average peer's, its future prospects could mean that it's not necessarily overvalued.
Consider Neutral Tandem
Biotech concern Exelexis
Around the world
As a finishing touch, consider adding international oomph to your portfolio. Emerging markets can add an extra shot of growth, while companies from more developed nations can help counterbalance any downturn in domestic stocks.
One compelling foreign large-cap is National Grid
Alternatively, you can get international exposure from American companies that earn much of their revenue abroad. You might think that Las Vegas Sands
Spread it around
Building a growing but solid portfolio can be a challenge, but combining good companies that are different from one another will help position you well over the long term. That's what we do -- and what we teach people to do -- at Million Dollar Portfolio. This real-money investing service combines the best picks from all of our services. If you'd like to learn more, just enter your email address in the box below.
Longtime Fool contributor Selena Maranjian owns shares of National Grid and Procter & Gamble. Exelixis is a Motley Fool Rule Breakers recommendation. National Grid, Procter & Gamble, and Total are Motley Fool Income Investor choices. The Fool owns shares of and has written covered calls on Procter & Gamble. The Fool owns shares of Exelixis and Neutral Tandem. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is Fools writing for Fools.