Investing for the Long Term: Best Stocks to Hold for 20 Years

Investing in stocks has historically provided a superior hedge against inflation, which is the gradual increase in the price level of goods and services in an economy. When inflation erodes the purchasing power of money, keeping your earnings in cash becomes a risky proposition. Traditionally, holding stocks ensures that your wealth grows, providing a buffer against the effects of inflation. Let's explore how to choose the right stocks to hold for the next two decades and the advantages of a long-term investment strategy.

Understanding Inflation and the Case for Stocks

In the last year, the global economy has seen a significant rise in inflation. For instance, in 2021, if you kept all your money in a bank account with an interest rate of approximately 0.7%, your savings would experience a real loss due to inflation, which was around 5%. This means that the purchasing power of your money would decrease, making it a suboptimal way to store value. Historically, the stock market has provided an average annual return of about 10%, surpassing the inflation rate, thereby making stocks a robust long-term investment option.

Investment Strategies for Long-term Stability

There are two main types of investors: one focused on achieving short-term financial gains and another focused on long-term stability. For those preferring the latter, a disciplined and systematic approach to investing proves invaluable. Here's a detailed strategy:

Invest in Diversified Mutual Funds: Consider investing in mutual funds that contain a wide array of stocks, such as the Schwab 1000 Index Fund (SNXFX). This approach helps in spreading risk and potentially identifying undervalued stocks. Automatically add to the fund: To ensure regular contributions, set up an automatic investment plan with your broker.

Avoid Market Timing: Do not attempt to time the market. "Buy on the dips," as they can present opportunities to buy at lower prices, enhancing your long-term returns.

Rebalance for Stability: By the time you reach your late 40s or 50s, start adjusting your portfolio to include more bond investments. Aim for a balanced allocation, with one-third of your portfolio in bonds by this time.

Three Recommended Stocks for Long-term Holders

Here are three high-quality stocks that you can consider holding for the next two decades. Each of these companies has a strong track record of performance and growth potential, making them excellent candidates for long-term investors looking to build wealth:

Dixon Technologies India Limited

Reasons for Holding:

Estimated to deliver strong quarterly results, positioning the company for continued growth. Sustained profits with a Compound Annual Growth Rate (CAGR) of 35.50% over the last five years. The stock is currently trading at 33.77 times its book value, indicating a fair valuation relative to intrinsic value. Higher returns on equity compared to fixed deposits. The security is not in overbought territory, suggesting a favorable entry point. No significant promoter shareholding is pledged or in the ASM/GSM lists, contributing to lower perceived risk.

Bajaj Auto

Reasons for Holding:

Debt-free status enhances financial stability and the ability to reinvest in the business. Generates a healthy dividend yield of 3.66%, providing regular income. Expected to report strong quarterly results, bolstering investor confidence. A consistent dividend payout of 61.76% ensures reliable returns.

Tata Elxsi

Reasons for Holding:

Significant debt-free status, which is crucial for maintaining financial health. Holds a impressive return on equity (ROE) history of 30% over the last three years. A generous dividend payout of 50.11% carries less risk of withholding. The stock trades at 25.29 times its book value, reflecting a balanced valuation.

Long-term Investment Channel Recommendations

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Conclusion

In conclusion, by carefully selecting the right stocks and implementing a long-term investment strategy, you can build a robust portfolio that not only outperforms inflation but also provides financial security for the decades to come. Remember, patience, diversification, and regular discipline are key ingredients for long-term success in the stock market.