Updated December 16, 2024. Myself and our team are commonly asked the question about how to invest wisely in the stock market. The answer to that question is that we really like the value investing approach. Generally, value investing involves selecting stocks whose share price is below its intrinsic value or book value. Warren Buffett is an example of value investing. Warren Buffett will buy a stock thinking that he could hold it for years without ever considering selling it. Trying to day trade or invest in the stock market on a short term basis will just add stress to your life. The reality is that no one knows what the markets will do in the short term. With this in mind, we highly recommend long term buy and hold strategies to will help you to create everlasting and perhaps generational wealth.
Volatile Markets
Updated December 13, 2024:
Barron’s predicts that the Stock Market Could Gain Another 20% in 2025. They say that Wall Street’s market forecasts are too tepid. Barron’s predicts that the S&P 500 could rally next year on a combination of AI growth and deregulation. But investors should prepare for a wilder ride.
Updated December 12, 2024:
Yes, 2024 was full of turmoil. Where to begin? Donald Trump was nearly assassinated. Joe Biden dropped out of the U.S. presidential race. China conducted more, and bigger, military drills around Taiwan. The French and German governments collapsed. Then, On December 8, 2024, armed rebels took the Syrian city of Damascus, forcing long-time ruler President Bashar al-Assad to flee the country. al-Assad fled Syria and now lives in Moscow, Russia with his family after being granted asylum.
All this chaotic news did not make markets flinch even one tiny bit. As of this writing, globally stocks are up around 22% since January 2024, while the tech-heavy Nasdaq is up more than 30%. In other words, all the bearish predictions for 2024 were way overblown, if not outright wrong. This was a good reminder about the perils of trying to time the market based on forecasts or your personal feelings about the world.
Updated November 28, 2023:
The USA Today reported that fears over a possible hard landing for the U.S. economy have subsided throughout the year.
The S&P 500 has gained a surprising 19% year to date in 2023. However, many of those gains have been concentrated in the technology and communication services sectors.
Updated October 13, 2022:
The markets sank in the morning after the Labor Department reported consumer prices jumped more than expected in September. U.S. equities roared back from big losses to post significant gains. The Dow had a 1,500-point swing, ending with a 827-point advance.
Updated September 14, 2022:
After a report for August 2022 which CPI came in higher than anticipated yesterday, the U.S. markets did a nosedive. The Dow and S&P 500 sank about 3% and the Nasdaq went down 4%. Core inflation rose to 0.6% in August, up from July’s 0.3% gain. If you look at the annual basis for core inflation, it accelerated to 6.3%, up for 5.9%. In conclusion, a higher than expected inflation rate will likely strengthen the Fed for more aggressive interest rate hikes. The FOMC will have a meeting on September 20-21, 2022 and will likely vote on a 75 bps rate hike.
Updated January 24, 2020:
On January 24, 2020, the S&P 500 index fell for its biggest one-day loss since October 8, 2019. But then the Fed, with their “expanded balance sheet” pumped more money into the markets to avoid the stocks from free falling. The good news is that it worked for almost a month. But, the big question many people are asking is what is the best way to invest wisely in the stock market?
Updated February 2020:
The last week of February the Dow industrials plunged 3,600 points. Consequently, the Dow’s weekly skid would rank within its top 15 in its 124-year history. In addition to this, the S&P 500 marks the fastest correction from a record in history. As a result, Thomas Lee, founder of Fundstrat Global Advisors, may be one of the few to acknowledge that something isn’t right with a market that was just enjoying a record close days ago. “This is not normal, and the market is clearly indicating to us a change,” Lee said in a research report on Friday.
COVID-19 Still Continues
Meanwhile, the coronavirus outbreak continues. Indeed, the coronavirus has spread to all continents except Antarctica. On March 2, 2020, The New York Times says the coronavirus has infected 90,000 people, and killed more than 3,000.
Many investors are worried that the virus could hurt the world’s economy. A top Apple AAPL analyst cuts the iPhone forecast by 10% due to the coronavirus. In addition, other US stocks are making similar forecasts.
Then the last week of February 2020 arrived. The stock market bulls have been saying that nothing could keep the market from hitting new highs. But the investors could not avoid the fact that there is no cure for the coronavirus and many believe the price of stocks is hefty.
Warren Buffett and Berkshire Hathaway
On March 2, 2020, Warren Buffet appears to be bullish about the direction of stocks, sitting on $128 billion in cash. But this chart of Buffett’s record cash pile appears to tell something different.
However, when looking at Berkshire Hathaway’s Cash Holdings, RIA Advisors strategist Lance Armstrong is more pessimistic about the markets. He says, “Follow the money. If he thinks stocks will outperform bonds why is holding $128 billion in short-term bonds?”
Updated Berkshire Hathaway Cash Holdings 2024
November 2,2024. Berkshire Hathaway Inc.’s cash pile reached $325.2 billion in the third quarter, a record for the conglomerate, as Warren Buffett continued to refrain from major acquisitions as he fears corporate taxes will rise.
December 3, 2023. Daniel Foelber wrote in The Motley Fool that the passing of Charlie Munger on November 28, 2023 marked the end of a chapter for longtime fans of Berkshire Hathaway. Munger lived 99 years and 11 months. Munger often spoke less than Warren Buffett during the company’s famous annual meetings in Omaha, Nebraska. But his wit and wry sense of humor lightened the mood and complemented Buffett’s bouncy cadence perfectly.
In valuing Berkshire Hathaway it is, without a doubt, a very complicated business to access. But at its core, the value comes from its public equity portfolio, cash, insurance business, BNSF railroad, BHE, and its manufacturing, service, and retailing segment.
Berkshire stock looks cheap even when assigning conservative values to all these moving parts. But it’s easy to see why it is probably undervalued, even though the stock is near an all-time high.
If we assume a 15 P/E on the manufacturing, service, and retailing business and add in the cash position, and Berkshire Hathaway would be worth $1.08 trillion. Berkshire stock looks cheap even when assigning conservative values and Daniel Foelber believes it is unquestionably a buy.
June 24, 2022. Berkshire Hathaway’s Warren Buffett goes on a spending spree and is now deploying billions of dollars in 2022. In 2022, it’s not just growth stocks are quickly selling off, but value stocks have gotten cheaper as well.
As a result, Buffett’s buying is sending a signal to all value investors. He is basically saying that stocks are now cheap and it’s a great idea to purchase noteworthy stocks when they are on sale.
What Berkshire Is Buying In 2022:
- Chevron CVX. Chevron is one of the largest energy companies in the United States. Berkshire already owns some shares, but Buffet bought more making Chevron 7% of of the portfolio.
- Occidental Petroleum OXY. Occidental Petroleum is now dirt cheap. Berkshire bought billions of dollars of Occidental Petroleum, pushing it up to the 6th largest position in the portfolio at 3.57%.
- Citigroup C. Citigroup’s shares are down by a third. But Citigroup is also one of the cheaper large banks, with a forward P/E of 7.5. It also pays one of the higher dividends, currently yielding 3.9%.
- Ally Financial ALLY. Ally Financial is also dirt cheap. It is trading with a forward P/E of just 5. Ally Financial pays a dividend yielding 3.1%.
- Paramount Global PARA. Paramount Global is a global media company with many brands including Paramount, Showtime, MTV and other brands. Paramount Global’s earnings are expected to decline 23.6% in 2022, but it pays a dividend yielding 3%.
4 Passive Income Strategies For Stocks
Below are four passive income strategies for stocks that will help grow your wealth over time. Investing on a regular basis rather than trying to time a lump sum investment can help you become a more disciplined investor. You’re forced to invest regardless of whether the price is high or low. This takes some of the emotion out of investing and avoids any delays in putting your money to work. Most financial planners advise saving between 10% and 15% of your annual income.
An index fund is a mutual fund or exchange-traded fund designed to follow certain preset rules so that the fund can track a specified basket of underlying investments.
To select an index fund, first decide what stock market index or indexes you want to keep track of. The next step is to find the fund whose performance closely correlates with that index. Look at the funds that has a low expense ratio. Ideally look for a low expense ratio which denotes the annual management fee for that fund.
1. Dividends
A dividend is a distribution of profits by a corporation to its shareholders. When the stock of a company posts quarterly earnings, it is abl eto pay a proportion of the profit as a dividend to shareholders. The shareholder has to decide if the want the dividend distributed to them or if they want to re-invest in the business with the dividend.
It is very important to only invest in dividend stocks wisely. Remember to only invest in companies that you belive in long-term with strong growth and fundamentals, not just because they pay you a high dividend. If you are looking for dividend champions, check out the following companies and there dividends below.
Possible Dividend Champions
- Becton, Dickinson, & Company (BDX). 5-year expected returns: 9.5%. Becton, Dickinson & Co., or BD,is a global leader in the medical supply industry.
- AbbVie Inc. (ABBV). 5-year expected returns: 9.8%. AbbVie is a pharmaceutical company spun off by Abbott Laboratories (ABT) in 2013. Its most important product is Humira, which is now facing biosimilar competition in Europe, which has had a noticeable impact on the company.
- Novartis AG (NVS). 5-year expected returns: 10.3%. Novartis is a Europe-based healthcare company. The company’s Innovative Medicines division offers medicines in the areas of oncology, cardiovascular, dermatology, respiratory and several others.
- Eagle Financial Services (EFSI). 5-year expected returns: 10.6%. Eagle Financial Services serves retail and commercial customers and offers consumer, mortgage and commercial loans as well as other banking services.
- AT&T Inc. (T). 5-year expected returns: 11.5%. AT&T is the largest communications company in the world, operating in three distinct business units: AT&T Communications, WarnerMedia, and AT&T Latin America.
- Enbridge Inc. (ENB). 5-year expected returns: 12.9%. Enbridge is an oil & gas company that operates the following segments: Liquids Pipelines, Gas Distributions, Energy Services, Gas Transmission & Midstream, and Green Power & Transmission.
2. REITs
REIT stands for real estate investment trust. A REIT is a way to buy stock in a company that just owns real estate and in exchange for giving them your money as an investment, they will pay you back some of their profits in the form of a dividend.
REITs can specialize in anything from medical buildings, shopping centers, senior care facilities or residential buildings. This a way that you can own part of company without having to go through the hassles of finding the right deal, doing inspections, coming up with the money, and then physically purchasing a property.
When doing your research of possible REITs I would suggest looking at:
Vanguard Real Estate ETF (VNQ)
Vanguard Real Estate ETF (VNQ) provides attractive exposure to real estate to real estate through the ownership of U.S. real estate investment trusts. The portfolio spans all end markets, from industrial to residential to health care.
Due to its REIT ownership, VNQ offers income as well. The effective yield, adjusted for return of capital, is a healthy 2.33%. That’s better than the 10-year Treasury bond and a nice addition to the diversification and has a low expense ratio of 0.12%. Other REITs like the iShares U.S. Real Estate ETF (IYR) have an expense ratio of 0.42%. When you compare the 0.12% against other REITs it doesn’t looks pretty good.
3. Index Funds
Index funds are a basket of stocks that you could buy into individually, but index funds have the advantage that you can buy into the fund instantaneously. This gives you the best diversification because you can access many different stocks and it is incredibly easy to do.
Investing in the S&P 500 index funds is perhaps the closest way to guarantee wealth accumulation over time. To get you started, these are some funds to have a look at:
Schwab S&P 500 Index Fund (SWPPX)
Schwab S&P 500 Index Fund (SWPPX) is an official S&P 500 index fund and it is the cheapest with an expense ratio of 0.02%. In other words, if you invest $1000, your annual is just $0.20. The good news is that your returns are pretty much the same as the S&P 500 index. According to MarketWatch, the turnover percent is 4% and the dividend is $1.04 annually.
Fidelity ZERO Total Market Index Fund (FZROX)
Fidelity ZERO Total Market Index Fund (FZROX) is an index that is designed to reflect the performance of the U.S. equity market. FZROX is a float-adjusted market capitalization-weighted index designed to reflect large, mid, and small capitalization stocks. This fund seeks to provide investment results that correspond to the total return of a broad range of U.S. stocks. Another good advantage is that the expense ratio for FZROX is impossible to beat at 0%. According to MarketWatch, the turnover percent is 6% and the dividend is $0.17 annually.
Fidelity ZERO Large Cap Index Fund (FNILX)
Fidelity ZERO Large Cap Index Fund (FNILX) is very similar to an S&P 500 index fund because it tracks an index of over 500 U.S. large-cap stocks. However, this fund is not a official S&P 500 index fund, so it avoids paying licensing fees that are expensive to the S&P’s parent company. As a result, the FNILX has a 0% expense ratio. If you are just beginning to invest, another key point is that there is no minimum investment for contributions to this fund. According to MarketWatch, the turnover percent is 5% and the dividend is $0.16 annually.
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX)
Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX). VTSAX seeks to track the performance of the overall total market. This fund uses an indexing investment approach to track the performance of the CRSP U.S. Total Market Index. The CRSP U.S. Total Market Index is a fund that has almost 4,000 companies across the mega. large, small, and micro capitalizations, representing nealy 100% of the U.S. investible equity market. The expense ratio is 0.04%. According to MarketWatch, the turnover percent is 8% and the dividend is $0.32 quarterly.
Vanguard Total Stock Market ETF (VTI)
Vanguard Total Stock Market ETF (VTI). VTI is an exchange-traded fund if you do not want to have a mutual fund index. This fund seeks to track the performance of the CRSP U.S. Total Market Index. The expense ratio is 0.03%. According to MarketWatch, the turnover percent is 8%.
Vanguard Growth Index Fund ETF (VUG)
Vanguard Growth Index Fund ETF (VUG). If you can afford to take on more risk in the pursuit of higher rewards, the tech heavy, exchange-traded, Vanguard Growth ETF VUG is a solid pick. The fund tracks the CRSP U.S. Large Cap Growth Index, which looks a lot like the S&P 500 Growth Index. It invests in each of 255 U.S. large-cap growth stocks. The tech stocks are heavily represented, accounting for 47% of its holdings, while energy stocks and utility stocks comprise only 0.3% combined. The expense ratio is 0.04%.
Vanguard Total Bond Market Fund (BND)
Vanguard Total Bond Market Fund (BND). For passive investors, the U.S. seems like the simpler choice when compared to Europe and Asia. Interest rates in Europe are artificially low, with some corporate bonds offering negative yields. Meanwhile, in Asia and emerging markets, risks are naturally higher. There are plenty of bond funds that are more aggressive and potentially could offer higher returns. But few offer the same peace of mind as BND which provides broad exposure to investment-grade American bonds.
4. Diversify With The All Weather Portfolio
Are you concerned about your investment in your portfolio of stocks? Would you like to sleep better with less stress at night? To do this you need to invest wisely in the stock market. Therefore, we highly recommend long term buy and hold strategies to will help you to create everlasting wealth.
This would be an excellent time to mention Ray Dalio. For those not familiar, Ray Dalio is the founder of the world’s biggest hedge fund firm, Bridgewater Associates, which manages $160 billion in assets. Ray Dalio is one hedge fund manager known for its all weather investing strategy.
Ray Dalio’s portfolio was back tested for the last 75 years. In the last 75 years it has been right 85% of the time. However, in the 15% that it wasn’t doing well its average mean was 1.6%, not a 50%, 40% , 30%, or 20% loss. In conclusion, his biggest loss was less than 4% and that was in 2008 when the market exploded.
Tony Robbins has good things to say about the All Weather Fund and he has some of his money invested this way. Listen to this in-depth YouTube video by Tony Robbins: Bullet Proof Nest-Egg Advice From Tony Robbins and Ray Dalio | Forbes.
All Weather Portfolio Allocations:
- 30% stocks, even though stocks traditionally grow at 9.2% a year.
- 40% long term treasuries
- 15% intermediate term treasuries
- 7.5% gold
- 7.5% commodities
- Rebalance these allocations once every year.
As you can see gold is an inflation hedge and a safe haven in unstable markets and a way to diversify risk. I like how the All Weather Portfolio is a balanced fund that works no matter what happens in the markets. I am thinking of designating some funds for this strategy in the long-term. What are your thoughts? Let me know in the comments below.
My Favorite Stock Market Commentaries
If you want to know more about how to invest wisely in the stock market, we recommend the commentaries below to give you a greater perspective:
Best Daily Market Commentary
Mott Capital Management and the owner Michael Kramer is one of the best people to follow and read on a constistent basis. He always gives you his unbiased opinion on where the market is and where is likely to go. As many investors know, sometimes the market will have multiple events in a week. So, hold on.
I am a value investor. Find good stocks and hold on to them for many years. That way you don’t have to worry about the micro-direction of the market from one day to the next and you can sleep a lot better. If you are interested in signing up for free commentary from Michael, go to mottcapitalmanagement.com. If you like it, you can subscribe as well for more content.
Best YouTube Trading Channel
In my opinion one of the best YouTube channels for the stock market is ShadowTrader. The host is Peter Reznicek. I have been watching this channel for more than six months and my conclusion is that Peter is an amazing person because he gets it right so much of the time. Many people know that the markets will tell you the story. So don’t try to go against the market or you will get crushed big time.
When I say Peter gets it right, I mean that sooner or later the markets will conform upward or downward to the directional prices that he gives out in his videos. His knowledge is phenomenal to watch, no matter what trading level you are at. This week’s title is “Buyers Shut Off”. Check out Peter Reznicek. He goes in-depth on his interpretation of what has happened and his predictions of key levels to watch.
Past US Presidents And The Stock Market
Now let’s consider the president of the United States in this blog about how to invest wisely in the stock market. Let’s take a look below at the stock market for the past US presidents all the way from Eisenhower in 1953 to Trump.
In the chart below, everything to the right of the chart is bullish. Everything to the left of the chart is bearish. As you can clearly see, a clear majority of the past presidents enjoyed bullish markets. If you were trying to short the market you would lose your cash very quickly. Most of the analysts after the stock market crash are saying to buy the dip. The important question is: WHEN?
Updated June 24, 2022. The chart below shows the end of President Trump in office and the beginning of President Biden. As we know, Biden is in the difficult position of the Fed printing trillions of dollars and then dealing with inflation as the price of oil and food continues to increase. So such for how to invest wisely in the stock market. As we have seen, through June 2022, the stock market prices are decreasing as inflation continues to go up.
You Are Responsible For Your Investments
Let’s go back to the original question about how to invest wisely in the stock market. Remember, you are ultimately in charge of your own investments. If you don’t feel comfortable being in the stock market maybe wait until the timing is better. As an alternative, you can always put your investment in a high interest savings account. The return wouldn’t be as good as investing in the stock market, but you will not lose money either.
On the other hand, if you are on the path to increase your wealth, congratulations! I encourage you to continue to learn how to invest wisely in the stock market. Investing in the stock market will definitely grow your investments long term. However, please understand that most people make money from their careers and then they invest their money in the stock market. Warren Buffett is a rare exception to this rule.
With is in mind, one of the best ways to increase your wealth is through real estate. Of the people who are millionaires, an astounding 90% got their wealth by investing in real estate. Real estate is one of the best ways to seek wealth and achieve financial freedom. I invite you to read our article Best Real Estate Strategies To Make 7 Figures.
What popular articles and blogs do you recommend?
Further Reading on FinancialGoodness.com: For more articles and blogs, please check out our guides on how to increase your net worth.
Until my next blog, best wishes….
Last Updated on December 16, 2024 by Financial Goodness
Financial Goodness
George Alexander Roy III and our team are experts in helping you to seek wealth through investing and tips on how to succeed. Join us at FinancialGoodness.com to increase your knowledge and skills through education in the areas of personal finance; real estate; investments; digital marketing; comparison of the best states to form LLC’s and comporations; and the best AI app for increasing your fluency in English.
George has been an owner of a residential real estate investment business that focuses on wholesaling, fix & flip, and long-term buy-and-hold property strategies with a consistent increase of annual revenues. Undoubtedly, the tax laws in the United States and Colombia, South America offer some very favorable tax incentives for owning real estate.
Consequently, as an entrepreneur, researcher, writer, and speaker I have sought the truth in everything I do, no matter how difficult. Hopefully this value and service will help each person achieve their financial freedom sooner.