By Jeff Reeves of InvestorPlace.com
Lately it hasn't been a lot of fun to be a buy-and-hold investor, with the
off about 15% in the last 10 years and essentially flat for the last five. But if you go back 15 years you'll find that simply by tracking the S&P 500 you would have doubled your money -- an annualized return of about 5%. And if you go back 20 years you'll find that the benchmark index is up 285% -- a gain of 15% per year!
So I'm here today to make the case for buy-and-hold investing for my fellow Generation X investors. I know, there are a lot of permabears and itchy-finger traders out there who think this is patently absurd, and I welcome them to fill up the comment section below with their bluster. There are many valid arguments against going long ever again, and I'm sure they will be represented here in the forum tool.
Allow me, however, the opportunity to debunk what I expect to be one of the most common complaints -- that the collapse of
prove that even seemingly unshakeable blue chips can implode and bankrupt you. The problem with that argument is that it assumes investors blindly ride along into oblivion. I fancy myself a buy-and-hold investor, but that doesn't stop me from checking quotes every day (often several times a day) or using stop losses to protect myself. Any responsible investor must do the same.
And frankly, if you're lazy enough or delusional enough to ride Citigroup down from $55 to $1 without batting an eyelash in two years, investing probably isn't for you.
So lets assume for the rest of this article that any investor following these trades would have a reasonable IQ and a conservative enough outlook to abandon ship at the early stage of any catastrophic events. With that in mind, here are seven investments that have potential in a diversified, long-term retirement portfolio that Generation Xers can trust for a decade or two:
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Part telecom utility and part gatekeeper for any digital gadget with an internet connection,
has a lot going its way. Verizon yields a dividend of about 6% and has maintained a payout since 1984, meaning shares bought today will pay for themselves in about 16 years even without a single dividend increase in the years ahead. Also, Verizon seems fairly valued right now, although it's not a screaming bargain. It's in the middle of its 52-week range with a price-to-book ratio of about 2.4 and a forward price-to-earnings ratio of 14.2. Looking forward, the company has decent near-term and medium-term growth prospects via a possible iPhone partnership in 2011 and the growth potential of its popular though capital intensive FiOS network. With an a3 rating from Moody's and a stable outlook, Verizon seems a safe long-term bet.
A bit riskier than Verizon,
could be a highly profitable long-term trade for value investors. The stock has a price-to-book ratio of 1.0 and a forward P/E of 12.3. Shares hit a 15-year low under $10 this summer but have bounced back quickly in the last several weeks thanks to better-than-expected third-quarter earnings. Unless you believe that weak consumer spending and a worldwide manufacturing drought will linger for decades, Alcoa is a great way to play the prospects of a recovery sometime down the road. Aluminum is a cheap and durable metal used in all manner of products. Though AA stock may not hit previous levels of $40 a share in the next several years, it's not outside the realm of possibility to expect half of those historic highs -- and a nearly 100% upside above current valuations.
If you want a massive, stable company with few competitors, look no further than
. The aerospace and defense giant is one of the lucky blue chips that enjoys a mainline to Uncle Sam's coffers via Department of Defense spending. But unlike some pricier rivals, UTX appears reasonably priced and has the reasonable expectation of growth. United Technologies enjoys a price/book of 3.5 and forward P/E of 13.9, and is expected to see annual sales growth of 10% across each of the next five years by most Wall Street estimates. To top it off, UTX enjoys a decent 2.3% dividend with a history of payouts since 1936. While there is concern over the federal budget, you can be sure defense spending will never be cut markedly -- and that UTX will continue to cash in.
There's a lot of talk about how the housing market hasn't bottomed, that the recent delay in foreclosures means another two or three years before we're out of this mess. Well if you have a 10- or 15-year horizon, why not buy into the diversified
SPDR S&P Homebuilders ETF
in anticipation of a recovery some time down the road? Rather than bank on an individual homebuilder, this is a play on the whole sector, with top holdings including builders
alongside mortgage financers such as
and residential furnishing and appliance companies such as
. Unless you truly believe America will become a nation of renters, XHB is a great long-term investment. XHB has an expanse ratio of 0.35% -- a considerable discount over the similar
Dow Jones US Select Home Construction Index ETF
with a current expense of 0.47% orsector-focused mutual funds such as
Fidelity Select Construction & Housing
(FSHOX) with an expense ratio north of 1%.
Remember $140 oil? Seems like a long time since we were all paying upwards of $4 a gallon for gas. Also seems like forever since Big Oil was getting grilled by Congress for its alleged shenanigans instead of Big Banks. But if you believe in massive U.S. debt driving a weaker dollar and strong inflation, and if you believe that eventually energy consumption will increase, then you'd be hard pressed to find a better long-term play than
. The stock was trading north of $90 as crude was making its making its run, and at a price/book of 2.4 and a forward P/E just south of 10.4, this could be a good long-term play -- especially with the addition of XTO Energy's natural gas operations last year. Additionally, any recovery, from an industrial resurgence to a tech rebound, is going to cause greater energy consumption. A lot could change in the energy sector in the next decade or so, but chances are Exxon will remain the 900-pound gorilla considering its current station as the largest U.S. company on Wall Street.
nearly folded amid the financial crisis and while
Bank of America
struggled to digest the inauspicious balance sheet of Countrywide on top of its own bad debt,
showed it was one of the healthiest of the major commercial banks. Wells is actually up 15% in the last 10 years compared with a 91% loss for Citi and 53% slide for BAC. Yes, the financial sector has seen a rough go of it in 2010 -- but WFC could be one of the healthiest picks out there. Consider that aside from a single fourth-quarter 2008 earnings report, Wells remained profitable throughout the financial crisis. Compare that to Citigroup, which posted only a single quarterly profit in all of 2008 and 2009, or BofA, which posted a quarter loss for the fiscal year 2009. The financial crisis has taken its toll, but as the dust settles in the year ahead Wells Fargo is the commercial bank to bounce back quickly and return to success.
Vanguard Small-Cap ETF
You may be wondering by now if there are going to be any growth picks in this list. After all, small-caps that become large-caps over the years -- or get bought out by the big dogs -- can deliver the most dramatic returns for many investors. Well, rather than follow the drumbeat of earnings to find small-cap growth plays, a good choice for Gen Xers is the
Vanguard Small-Cap Growth ETF
. The ETF has almost doubled since the March 2009 lows and is up 14% year to date -- almost triple the Dow Jones and S&P 500. The mega-caps also mentioned in this list will do a good job of rooting the portfolio, while this growth ETF will tap into the aggressive growth potential of small-cap stocks over the next decade or two. Another plus is the reasonable 0.14% expense ratio. Comparable SPDR or iShares ETFs with a small-cap growth focus have ratios as much as twice that. Over the decades, those savings will really add up.
At the time of publication, Reeves had no positions in stocks and ETFs mentioned.
--Written by Jeff Reeves of InvestorPlace.com.
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