Make the Most of Your Biggest Asset
Most people understand how important it is to invest well if you want to become financially secure. Unfortunately, what stops many of those people from starting to invest is the misimpression that they don't have what it takes to be a successful investor.
Sure, you may not have a ton of money to invest right away. You may not know the first thing about the thousands of stocks that trade on U.S. exchanges, let alone have the investing chops of a Warren Buffett to be able to find the golden needles in that huge haystack of stocks. But the biggest asset you have on your side is time, and the sooner you get moving to get yourself invested, the more time you'll have to reach all your financial goals.
The true value of time
Many have decried buy-and-hold investing as a hopelessly out-of-date investing strategy. Without being willing to move in and out of stocks, they argue, investors more often than not ride winning stocks all the way back down during bear markets, rather than cashing in and taking profits.
But one story reaffirms the fundamental truth that choosing great companies for the long haul can lead to amazing wealth. As the Wall Street Journal reported over the weekend, one fund that's been around for more than three-quarters of a century has put together an amazing track record not only of survival but of excellent returns even as the world has changed dramatically over that time.
The fund, ING Corporate Leaders Trust, commemorated its 75th anniversary with a link on its website to an article from Morningstar titled "Celebrating 75 Years of Sloth!" The fund, structured as a unit investment trust, takes buy-and-hold investing to an extreme, only changing the stock holdings that it started with back in 1935 when a stock stopped paying a dividend or had certain problems with its debt. As a result, the fund still has 22 stocks, many of which represent the original holdings of the trust.
The more things change, the more they stay the same
Obviously, some of those companies look a lot different than they did in the 1930s. AT&T (NYS: T) has gone from an up-and-coming telephone leader to a giant in mobile telecom, having largely moved away from the legacy landline business that gave it so much of its success in the interim. General Electric (NYS: GE) still has many of its industrial roots, but its more recent forays into finance and alternative energy have blurred its focus to make it clear the company is a true conglomerate.
In addition, the fund has gotten lucky in a couple of cases. For instance, many of its oil holdings have become part of ExxonMobil (NYS: XOM) , while its pick of Burlington Northern gave the fund exposure to Berkshire Hathaway (NYS: BRK.B) , a stock that most investors believe has a better chance than many of lasting well into the future.
Admittedly, the fund hasn't escaped problems entirely. It kicked out Eastman Kodak and Citigroup (NYS: C) only well after their respective problems caused losses for investors.
But what has helped the fund survive is its original focus on identifying leaders from a wide array of sectors within the U.S. economy. Rather than trying to switch in and out to follow every new trend, the fund put time on its side, trusting that industry leaders would on the whole be able to navigate changing conditions and find new ways to thrive.
What not to do
Before you decide that a zero-turnover fund is always the best way to go, consider that it hasn't always worked out that way. The HOLDRS series of exchange-traded products from Merrill Lynch had a similar philosophy, holding on to a set of stocks and never allowing new ones to become part of its holdings. The resulting attrition for certain sectors, especially Internet and biotech stocks, led to the absurd result of HOLDRS with only a couple of stocks in them.
But the key to understanding the value of time is the perspective that it gives you. With time on your side, you can choose companies that have no prospect of improving immediately yet that have huge long-term potential. You can accept losses on a few investments with the expectation of big payoffs from others. The freedom of not having to deliver results next month or even next year lets you make smarter investments.
Don't underestimate the power of time for your investments. Used wisely, it can bring you amazing results in the long run.
Take the time to get smarter with your investments. You can get some helpful guidance by reading the Motley Fool's special report on investing for retirement. Inside, you'll find some other smart long-term plays that have served investors well. Just click here and start reading your free copy right now.
Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance. You can follow him on Twitter@DanCaplinger.
At the time this article was published Fool contributor Dan Caplinger tries to put time on his side. He owns shares of Berkshire Hathaway. The Motley Fool owns shares of ExxonMobil, Berkshire Hathaway, and Citigroup. Motley Fool newsletter services have recommended buying shares of Berkshire Hathaway. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy makes the most of the time you give it.