here now to break down some tips and tricks for investing over the long term is IBD's personal
Finance and Management Editor Matt Krantz thanks for joining me today Matt thanks for having me
all right so we have active investors you know can slim position traders really keeping a close
watch on their individual holdings and we have passive investors who are looking to maybe set
it and forget it but they still want big gains over the long term so when you're thinking about
how to handle your portfolio in the long run what are some things that investors should know
yeah the key is and you touched on is you kind of have to know what kind of investor you are
if you're an active investor and you like to pick individual stocks that's great and most
likely you're going to make giant gains over the over the years if you have a system that works
like can slim and you stick with it and you monitor it and you watch it and you subscribe to
ibd live and you listen to all the experts that we have here that tell you how to monitor the
markets for individual stocks but there's usually a part of your money too that's more long term
and this is usually mutual funds etfs retirement accounts 401ks iras and this is kind of a
different animal because this is money that you're going to put away for 5 10 15 20 30 years and this
isn't money that you're necessarily getting in there making strategic changes all the time
in fact usually the best way to make money long long long term without making strategic changes
like what you hear about at ibd for tactical changes with individual stocks is by picking a
strategy and sticking with it over the long haul and not trying to make major swings just because
the market makes such kind of a shift day-to-day yeah uh well what if i think amazon is has a long
runway of growth ahead for it it's been a market leader for a while what should i do about setting
and forgetting something like that and that's a great point i mean when you look at the market
this year it's been really kind of carried by just like four or five companies some little companies
who are really erupting out of nowhere like you know like zoom video it's up so much this year
i'll probably never make that much money on my 401k in my entire lifetime that people made just
this year but the fact of the matter is these individual stocks are very volatile and they need
to be watched and you need to respond to them from a day-to-day basis when you're going longer term
you want to own broader baskets of stocks bill o'neil our founder who used to always say when
you pick a great mutual fund you identify a great mutual fund you buy it and you never sell it and
i think that's great advice with mutual fund long-term money you identify the winners you
either find the managers who are have skill to pick the best stocks for you over the long term
or you can identify themes or etfs or low-cost index etfs that pick
major asset classes be at the s p 500 or via small cap or be it growth stocks and you just
let it ride over the years and you don't want to be second guessing that part of your portfolio
yeah well there are thousands of funds to choose from so how should investors pick the best ones
how do you know even if it is something that's broadly diversified um how do you pick the best
place to park your money well ibd does a lot of the homework for you we have a best mutual fund
section on our website and we also publish it in our newspaper where we identify the very very very
best mutual funds over the long term these are the funds that have delivered year after year
after decade after decade and have the best most skilled advisors and managers that we can find
because you have to keep in mind at least 80 or more percent of mutual funds underperform the
s p 500 and that brings me to my next point if you just want a low-cost way to play the market
it's really hard to beat the index funds and a fund that invests in the s p 500 say vanguard's
vo victor oscar oscar or even the spyder spy super low cost if you're in a portfolio that's 60
stock and 40 bonds if you put 60 in an s p 500 fund and that's your long term money
it's going to be really hard to find mutual fund managers that are going to beat that
well if i am looking to get a little bit more creative than an index fund and i like investing
in growth stocks there are thematic etfs out there as well that investors can consider um
mixing in when you're diversifying that long-term portfolio uh when you're deciphering among those
what are some things to consider that's a great point ellie and i'm really glad you brought
that up the s p 500 is great it does a really good job with large cap blend stocks but it's
kind of like a mallet and it's not the kind of thing you're going to use when you want to like
you know do some delicate work in fact it has some major gaps so one major gap that it does have is
say cloud computing there are some smaller cloud computing companies that are coming on strong
take a zoom that's not in there so there are thematic etfs that let you focus on areas that are
missing in the s p 500 with that said there's also areas that are overweight so energy as we know
is a dumpster fire it's been a complete and utter disaster not just this year but for many years and
you own all that stuff when you own the s p 500 so to counteract that you might want to build in some
themes that kind of shift you away from that like maybe innovative web or or other areas as well
yeah and i guess the other thing too to remember or at least think about is you want to make sure
that it's it's not a theme that might just be a flash in the pan like pot stocks were all the rage
when they and when some of those first went public but we're not really seeing the results there
so how do you balance when it comes to investing in thematic etfs but really trying to focus on the
long-term performance that's a great point because as we said earlier when you shift too much in your
long-term portfolio you're almost dooming yourself to subpar returns and there's always a tempting
thing out there electric cars you know it's tempting but now as we're finding out recently
there's a lot of volatility in there so that's again where etfs can really come into play so for
example video games not a fad they've been around for decades it's the most it's the largest form of
at home entertainment now even bigger than movies you could try to pick an individual winner but man
that's tough so there's etfs that you can buy that give you like a an amalgamation of all the leading
video game companies not just in the us but across the world so if one of them has a blow up or a dud
or a lemon you're diversified and you own the ones that work so that's a to me that's a classic case
of where you can use a thematic etf to kind of bolster a long-term portfolio yeah uh and you know
making small tweaks along the way uh how how do investors decide between kind of sticking it out
with something that they're not really short-term seeing um a lot of success with and shifting that
capital elsewhere to try to boost those returns another great question i'll give you two examples
so one long-term asset class it makes a lot of sense for a lot of people are small cap stocks
small cap stocks are highly volatile they're they're enough to just keep you up at night
sometimes they're they're they're unproven they're risky but man do they deliver over the long term
small cap stocks because of their off the charts risk tend to do really really well over the long
period of time which we're talking about so you may get a year where you're down 20 on
your small caps and you can buy small cap etfs but in that case you want to stay the course
but there's other asset classes that aren't like that so one that we're that's just bringing a
lot of attention right now are value stocks the academics tell us that value stocks are superior
over the long term that they are riskier those they're cheaper so they give you a better return
but you know what they just have not delivered they've lagged growth stocks for 10 years this
has never happened in history and i've talked to advisors the clients are just they've just had
it and what they've realized the advisors say look the academics may be right it may be possible that
value stocks are better in the long term but you know what we're human and at some point we can't
bear the pain and advisors that even specialize in value socks are having their clients say i'm
i'm done get me out of this so what they've learned is that our threshold for pain has to
be factored in as well and even though something should happen it doesn't you need to make an
adjustment or you're just going to make a bad decision so a lot of these value managers are
starting to shift into growth because their clients just can't take the pain anymore
yeah well there's a lot to consider and we do know that uh without risk there's no reward but
investing over the long term is something that is so very important
so we really appreciate all of these takeaways today matt absolutely thanks for having me
hi there thanks so much for watching investing strategies on our youtube channel
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