I wouldn't blame you if you're feeling stressed out these days.
You know all the numbers. Despite the recent rally, stocks are still nearly 40% off their highs, and over 100 large-cap companies are still down over 50%.
Maybe you're worried about your portfolio but are feeling a little gunshy about the market. That's understandable.
But if you want to get back to where you were -- much less get ahead -- then you need to buck up and take on a little risk.
At least match the market
We're all in different situations, and we all have different risk tolerances. And that's as it should be. But that doesn't mean we'll all get the same returns.
If you're mainly invested in CDs, money market funds, and maybe bonds, well, you'll probably be lucky over the long run just to beat inflation. That'll give you the same, not more, buying power in the future.
If you take on a little more risk, over the long term you'll likely end up a little richer. What would a little more risk look like for you?
At a minimum, consider putting most of your long-term money in a simple index fund that holds big names such as ExxonMobil (NYSE:XOM), AT&T (NYSE:T), and IBM (NYSE:IBM). That way you'll automatically match the market's returns, which have topped bonds and other alternatives over most long periods.
Earn more
If you need to do more than match the market, which has averaged 10% annualized returns, then you can do one of two things.
You might add some top managed mutual funds run by investors you admire, funds with low fees and strong records.
But you could also add individual stocks. Dividend-paying blue-chip companies, for example, aren't particularly risky over the long term, but they're quite a step up from bonds and T-bills, and Jeremy Siegel has demonstrated how powerful they are when you reinvest those dividends.
A good dividend-paying portfolio candidate will have market-beating yields, dividends that have increased over the previous 12 months, and growing revenues. Here are a few that came up when I screened for those qualities recently.
|
Company |
Dividend yield |
Dividend Growth, LTM |
|---|---|---|
|
Procter & Gamble (NYSE:PG) |
3.3% |
14.3% |
|
Johnson & Johnson (NYSE:JNJ) |
3.5% |
10.8% |
|
ConocoPhillips (NYSE:COP) |
4.2% |
10.6% |
Data: CAPS.Fool.com, Morningstar.com.
Aim even higher
If you really want to outperform the market, consider parking a portion (and a fairly modest one at that) of your nest egg in stocks with a chance of really surging.
What do those look like? They're usually young, rapidly growing, and busy busting the status quo to create a new way of doing things -- making them first-movers in important, growing industries.
Think companies like Research In Motion (NASDAQ:RIMM), whose ubiquitous Blackberries revolutionized the world of workplace communications and whose is up 100% year to date. Or Nucor, which brought excitement to the steel industry by using non-traditional production methods like mini-mills and thin-slab casting.
They're the companies you'll end up wishing you'd bought. They're the millionaire-maker stocks.
The Foolish bottom line
Finding one or two of these companies before they've made their mark can make quite a difference to your ultimate results. They're the proof that a little more risk can make you rich.
So, consider being more aggressive. Your portfolio and your retirement might thank you for it.
These are the kinds of companies that Fool co-founder David Gardner looks for in his Motley Fool Rule Breakers investment service -- and his recommendations are outperforming the market by 12 percentage points. You can take a 30-day free trial and see everything he's recommending now. Just click here to get started -- there's no obligation to subscribe.
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Longtime Fool contributor Selena Maranjian owns shares of Johnson & Johnson and McDonald's. Johnson & Johnson and Procter & Gamble are Motley Fool Income Investor recommendations. The Fool owns shares of Procter & Gamble. The Motley Fool is Fools writing for Fools.
