It’s easy to get caught up on the hot new exciting
companies that always make headlines. But
sometimes, the staid, boring blue-chips are smart
assets to keep for the long term.
Unlike more celebrated stocks, such as Facebook
and Apple, there are some blue-chips whose every
move is not picked apart on Wall Street – and their
Chief Executive Officer isn’t a household name like
More than just price appreciation
Just looking at stock price appreciation is shortsighted.
Everyone wishes they invested in Apple right
before it released the iPod and eventually became the
most valuable and profitable corporation in America.
Apple’s price went up so much because word of new
products drove the stock price higher. Until very
recently, that was how Apple rewarded its
shareholders. Stock prices rise on the expectation of
a future share of profits.
Many other companies’ shareholders don’t get
dividends either, because the companies need to
keep their cash to continually expand (for most of its
existence, Apple did not pay a dividend, as is typical
for most tech companies). Mature companies don’t
make the kind of news that results in huge price
appreciation. They simply make sales and direct a
large portion of their profits into the pockets of those
who own the company.
Dividend investors can get rich just as easily as
growth investors. But you have to maintain ownership
over a long period to make it work. You must resist
the urge to sell when crisis hits.
Also, no matter how mature the company is, generally
speaking, no stock deserves more than 15% of your
whole portfolio. Even giants like Lehman Brothers can
go up in flames without anyone seeing it coming.
Invest in the broader market to capture gems to
achieve the returns you need for your retirement
Be wary of the press
By picking up any financial magazine that reports on a
company’s returns, you see examples that either beat
or trailed their counterparts.
But investors who chase returns fall prey to the
thinking that past returns are indicative of future
results, when we know that that’s not the case.
There’s no guarantee that the stock (or mutual fund or
bond) will increase in value, and there’s no guarantee
that it will decline. We just don’t know.
There may be a good chance that a top-returning
stock is going to go down, although it may not happen
right away. The reason is that when publications show
companies with amazing returns, there are some
people who flock to them, chasing returns. Prices
What happens next is that a number of long-term
investors in the fortunate stock sell – and they sell a
Naturally, when there’s quite a bit of selling, prices
drop, and so do the returns of those who jumped into
the hot stock, expecting more increases.
Diversify & allocate
Rather than chasing returns, a wise choice is to invest
broadly among asset classes and diversify
accordingly.1 An excellent way to do this is through
buying mutual funds of different asset classes (such
as stock, bonds, real estate and international stocks
and bonds). This helps you avoid chasing returns and
helps you accept that certain asset classes will rise
and others will fall.
But the combination of a large number of securities in
one portfolio not only lowers overall portfolio risk, but
also prevents an investor from chasing the next big
stock whose lush returns already happened.
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Diversification does not ensure against loss.
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