Archive | Investing

An Example of How Long Term Investing Works

Sometimes You Need An Example of How Long Term Investing Works


It is useful to look at an example of how long term investing works to gain an understanding regarding why the “buy and hold” investing strategy is so highly regarded in the investment community and may be the correct investing strategy for many individual investors to pursue. While some may view the “buy and hold” investing strategy as so common and basic that it is little more than a useless cliché that is repeated by investment advisors over and over again, a look at the stock market data over long periods of time demonstrates why this strategy is a prudent one to utilize. In fact, most investors would be surprised to learn just how much the stock market has increased in value if they look back four decades, which is a reasonable amount of time for a person to be invested in the stock market for long term needs, such as retirement.

An Example of How Long Term Investing Works | Looking at Stock Market Indexes

Consider this example of how long term investing works, which looks back at stock market indexes forty years into the past. In April 1975 the Dow Jones Industrial Average (DJIA) was approximately 825, while today in April 2015 it is over 18,000, which is a more than 2,000% gain. The Standard and Poors 500 (S&P 500) index had even larger gains over this forty year time period of over 2,300%. The winner over the past four decades has been the technology heavy NASDAQ index, which has booked over 6,200% gains since April 1975.

Long Term Investing Works

The examples above are just gross index gains over four decades, and do not take into consideration dividends that were paid or reinvestments of dividends into stocks over this period of time. When dividends and reinvestments are factored in, these gains could be substantially higher for individual investors.

Forty years is a reasonable amount of time to take under consideration when accessing long term stock market gains. This is because most people start saving for retirement when they are in the twenties or early thirties and invest money over four decades for retirement, which occurs anywhere from the age 65 to 75, depending upon a person’s circumstances.

What To Keep In Mind Regarding Long Term Investing

Here are some important things to keep in mind when investing for the long term, such as investing for retirement several decades in the future.

  • Dollar cost averaging works. This is when you buy stock or stock funds, such as mutual funds or exchange traded funds (ETFs), on a regular basis, regardless of where the stock market is trading. Dollar cost averaging will allow you to establish investments in stocks and stock funds that will grow over time, without regard to timing investment entry points. Just put your money to work in the stock market.
  • It is important to remain invested. There is an allure to trying to time the stock market; however, it is important to not get caught up with market timing and to just remain invested over the long haul. The reality is that even professional investors have difficulty timing the stock market properly. Ordinary individual investors are better off riding out any stock market dips and using the principal of dollar cost averaging to buy on dips, with a focus on long term gains. Even if an individual investor successfully gets out at a near term stock market top, all too often they fail to buy back in at a near term bottom, and find themselves out of the stock market missing the next leg up.
  • Reinvest dividends to maximize returns. Investments in a broad array of stocks can be expected to return approximately nine percent per year over long periods of time, such as four decades. This includes both up years and down years. In the long run, the up years will outnumber the down years, providing the long term returns. The best way to maximize stock market investment returns over long periods of time is to reinvest any dividends earned back into the stock market, as reinvested dividends invested in stocks will enhance returns over time.

An Example of How Long Term Investing Works | Focus On The Long Term

Long Term Investors

The most fundamental thing an individual investor can learn about investing is to tune out the constant drone of stock market pundits and simply focus on the long term. The thousands of percent returns that have occurred in the stock market from April 1975 to April 2015 included many periods of stock market panics and gloomy outlooks, including the October 1987 crash, the severe 2000 to 2002 bear market sell-off, and the financial crisis and stock market swoon of 2008 and 2009. Those who sold out during these notorious stock market sell-offs lost out on the long term investment gains.

If you do not need your money in the short term, because it is intended for retirement decades in the future, then just ignore the short term stock market noise and keep your focus on the long term. If you have extra money sitting in cash on the sidelines, use any dips in stock market averages to dollar cost average and increase your long term investments. The example above regarding how long term investing works should provide an individual investor needed confidence to be a long term investor.

Stay up to date on stock trading ideas by getting on our FREE eMail list!

By clicking 'Subscribe Now', you agree to our Disclaimer and Privacy Policy. We are 100% Anti-Spam and will never share or sell your information!

Posted in InvestingComments Off on An Example of How Long Term Investing Works

Now Is a Good Time To Invest In Housing

Invest In HousingAfter experiencing an uneven recovery in the wake of the deep recession of 2008 and 2009, now is a good time to invest in housing, since housing is showing signs of a sustained recovery. There are a few macro forces that should underpin housing prices and gradually force them higher over time.

First off, the inventory of housing that is in a distressed state; either pre-foreclosure, in foreclosure, or undergoing a short-sale, has been declining for years, and is finally reaching normal levels that support higher house prices. The downward pressure in housing prices that is caused by excessive distressed real estate is abating.

Secondly, millions of people who were foreclosed upon when the real estate market peaked between 2006 and 2008 have reached the seven year threshold in which past their foreclosure is removed from their credit report.   This is causing a slight, but significant uptick in homebuyers.

Third, the household formation rate is once again rising, which is critical for home sales, since people tend to buy homes once they have formed a household of their own. More than half of people living with relatives are now planning on buying their own place.

Finally, the job market has picked up significantly, and continues to improve. More jobs means more people can afford to buy homes.

Invest In Housing By Thinking Long-Term

New HomeThe severe drop in housing prices that occurred from 2006 to approximately 2012 has affected the psychology of home buyers, making some shy away from buying, due to fears that housing prices will fall.   The reality is that those six years were an aberration when viewed from a broader perspective. Normally, housing prices go up over time, as they had done for decades until the 2006 housing bubble crisis set in. It takes a huge economic recession, such as the Great Depression of the 1930s or the Great Recession of the late 2000s to cause housing prices to fall. Even then, housing prices eventually recover. In the grand scheme of things, another sustained drop in housing prices might not unlikely to occur for many decades, until another severe recession takes hold.

The key to successfully investing in housing is to think long-term. Whether you are thinking of buying a house as an investment or investing in the housing industry by buying stocks or funds associated with the industry, you have to think long-term over many decades to book solid returns. Due to all the costs associated with buying and selling a house, flipping houses quickly is not viable in many situations. Think long-term and make improvements to a home that increases its value. If you are taking the stock or fund investment route, consider reinvesting any dividends that are paid to maximize investment gains over time.

If you do not plan on staying in a home for at least five to ten years, then you may be better off renting instead. But, do not let that keep you from buying a house as an investment property. If you are able to buy an investment property in an area that has no problem finding tenants, you can either manage it yourself or hire a management firm to manage the property for you. Again, think long-term. The rental rate for the house can be raised over time, bringing in additional income, as your mortgage stays at a fixed thirty-year rate. In the long-term, you can build a nice retirement nest egg paid for by people who rent your property over the thirty-year period.

Invest In Housing | Buy Housing Stocks and Funds

HovnanianThere are a myriad of housing stocks and funds that can be utilized to invest in housing. While many of these stocks and funds are well into multi-year rallies, coming off the housing price bottom of recent years, there are still ways to invest in them.

If you are truly a long-term investor, find housing stocks and funds that have the best fundamentals and invest long-term. The market will go up and down, but over time, solid companies will produce solid returns.

Here are some ideas regarding how to invest in housing using stocks that are oriented towards the housing market.

  • Hovnanian Enterprises, Inc. (NYSE:   HOV) – designs, constructs and sells residential homes. It constructs a wide variety of homes, including: single-family stand-alone homes, attached townhomes and condominiums, homes on unutilized urban properties, and active adult homes. The company has over 200 developments in over thirty markets across the United States. It also has a financial services division that originates mortgages for homebuyers, sells mortgages in the secondary market, and provides title insurance services.
  • KB Home (NYSE: KBH) – constructs and sells various types of homes, from attached and detached single-family homes to townhomes and condominiums. The company also provides insurance products, including: property, casualty, earthquake, flood, and personal property insurance to people who buy the homes that they build. They also provide title and mortgage banking services.

The following are some exchange traded funds (ETFs) that can be purchased to invest in housing.   Investing via funds is a safer way to invest in housing, since a fund invests in multiple stocks and spreads the risk out among numerous companies.

  • SPDR S&P Homebuilders ETF (NYSE: XHB) tracks the performance of the S&P Homebuilders Select Index, which includes some of the largest home builders and building material suppliers in the United States.
  • PowerShares Dynamic Building & Construction Portfolio ETF (NYSE: PKB) is made up of companies in the Dynamic Building & Construction Intellidex Index.   The index includes companies that supply materials to the construction industry and home improvement companies.
  • iShares Dow Jones U.S. Home Construction ETF (NYSE:   ITB) invests in companies included in the Dow Jones U.S. Select Home Construction Index. The ETF includes a broad array of companies, from home builders to building materials manufacturers to home improvement firms.

Stay up to date on stock trading ideas by getting on our FREE eMail list!

By clicking 'Subscribe Now', you agree to our Disclaimer and Privacy Policy. We are 100% Anti-Spam and will never share or sell your information!

Posted in InvestingComments Off on Now Is a Good Time To Invest In Housing

Investing In European Stocks

Investing In European Stocks To Capture Gains

Investing In European StocksWith the European economy showing signs of recovery and the European Central Bank (ECB) kicking off a Quantitative Easing (QE) program, investing in the European stocks makes a lot of sense. Stocks in the United States have reached valuations that are quite lofty by just about any valuation metric. With the United States Federal Reserve expected to raise interest rates and a strong United States Dollar, stock gains in the United States should be more limited than they have been in recent years. Investors looking for big gains in stocks should consider investing in European stocks, as the European economy recovers and stock valuations in many European stock markets are still at reasonable levels.

Investing In European Stocks Can Be Done In Many Ways

Out of all the major world economies, the European economy has been the most sluggish coming out of the 2008/2009 deep recession. It has meandered along between tepid growth and slight recession since 2009. This uneven growth pattern has caused investors to lose confidence in Europe and avoid European stocks.

This scenario is in the process of changing during 2015.   The weakening Euro currency and the newly implemented Quantitative Easing (QE) program by the European Central Bank (ECB) are working in concert to give the European economy a boost during 2015. The weakening Euro is making exports from Europe much more attractive in world markets. The European Quantitative Easing (QE) program is expected to inject the equivalent of $1.2 trillion United States Dollars into the European economy through September 2016. Lower oil prices are also acting as a tailwind for the European economy. However, since the countries in Europe are not as dependant on oil for transportation as other developed countries, the reduced cost of petroleum products has less of a positive economic effect on Europe in comparison to other developed economies in North America and Asia.

The sluggishness of the European economy since 2009 has had one benefit to investors looking to invest in 2015, it has kept European stock markets from racing higher. Although European stock markets, particularly Germany’s stock market, have performed well lately, they are still at valuations that are lower than United States stock markets. With economic growth expected to pick up in Europe during 2015 and their stock markets still at fair valuations, investing in European stocks may provide a way to grow an investment portfolio.

How To Invest In European Stocks

There are many ways to invest in European stocks. Some are aggressive, while others are more suited for investors that like to take a conservative approach to investing.

Deutsche Bank

If you are an investor that doesn’t mind taking on risk for higher returns, consider investing directly in European stocks or stocks of American companies that do a lot of business in Europe. European companies that trade on United States stock exchanges do so as American Depositary Receipts (ADRs). Some examples include the European banking giant Deutsche Bank (NYSE: DB), the software and computer services company SAP (NYSE: SAP), the global oil giant British Petroleum (NYSE: BP), and well known pharmaceutical company GlaxoSmithKline (NYSE: GSK). This is just a small sampling of European stocks that trade in the United States.   Hundreds of European stocks can be purchased on United States stock exchanges and on stock quotation systems, such as (Pink Sheets). In fact, Pink Sheets trades some of the largest European companies that want exposure to United States markets, but do not want to comply with United States listing requirements.

If you are a conservative investor, consider investing in European stocks via exchange traded funds (ETFs), exchange traded notes (ETNs), or mutual funds that are either exclusively invested in Europe or have large holdings of European stocks. Your gains will not be as great as you can earn by picking the best winning stocks, but your risk will also not nearly as high as investing in individual company stocks. Companies can buck market trends and lose value, even during strong stock market upswings. If European stocks rise in coming years, you can participate by holding European focused exchange traded funds (ETFs), exchange traded notes (ETNs), or mutual funds, and sleep easier at night.

Investing In European Stocks | Some European Investment Ideas

iShares EuropeThe following are some exchange traded funds (ETFs) that are focused on European stocks, from large cap stocks to emerging economy stocks to small cap stocks.

  • iShares Europe (NYSE: IEV) is an ETF that provides broad exposure to some of the largest European stocks included in the S&P Europe 350 index. Companies included in the index come from economic powerhouses France, Germany, and the United Kingdom, as well as many other European countries.
  • Vanguard FTSE Europe ETF (NYSE: VGK) is another ETF that provides broad exposure to large European stocks in the largest economies in Europe. VGK invests in stocks included in the FTSE Developed Europe Index that is comprised of major stocks in Europe.
  • SPDR S&P Emerging Europe (NYSE: GUR) invests in what is known as emerging economies of Europe, which are located in the south and east part of the continental Europe. GUR’s investments correspond to the S&P European Emerging Capped BMI index. The fund has heavy exposure to Russian companies, which is an important piece of information for investors in European stocks to consider.
  • WisdomTree Europe SmallCap Dividend (NYSE: DFE) provides a way to invest in Europe’s small cap companies. While small cap companies are not nearly as well known or well financed as their larger cousins, they do offer the potential for larger gains, should European stocks move higher in response to an economic revival. DFE invests in European small cap stocks included in the WisdomTree Europe SmallCap Dividend index.

Stay up to date on stock trading ideas by getting on our FREE eMail list!

By clicking 'Subscribe Now', you agree to our Disclaimer and Privacy Policy. We are 100% Anti-Spam and will never share or sell your information!

Posted in InvestingComments Off on Investing In European Stocks

Slowing Corporate Earnings May Mean End of The Bull Market

Slowing Corporate Earnings May Mean End of The Bull Market

Wall StreetWith the bull stock market that began in March 2009 entering its seventh year, is the end of the bull market nearing? Slowing corporate earnings may mean end of the bull market, or at least a much more gradual and volatile ascent in stock market averages.   Ultimately, it is corporate earnings that drive the stock market higher or lower over time.

The first quarter of 2015 is expected to be the first earnings contraction since the Great Recession of 2008 / 2009, with corporate earnings in the United States expected to decline by 2.7 percent when Q1 2015 earnings are reported during the spring. While corporate earnings are expected to pick up as 2015 progresses, they will be the weakest annual earnings since 2009. Earnings are being hurt by two factors, the rising United States Dollar and falling oil prices. On top of that, the current bull market has the major headwind developing, as the Federal Reserve is expected to raise interest rates for the first time since 2006.

Slowing Corporate Earnings May Mean End of The Bull Market

Rising United States Dollar The slowdown in corporate earnings during 2015 is certainly a concern for stock market bulls that are invested in stocks expecting them to continue to rise during 2015 and beyond. The Standard and Poors 500 (S&P 500) index is trading at a Price to Earnings (P/E) multiple that is 17 times projected 2015 earnings. With the long-term Price to Earnings (P/E) multiple for the S&P 500 index around 15 times earnings, any slowdown in earnings growth during 2015 could cause the stock market to have trouble finding justifications to rally higher. If anything, the stock market may revert to the mean of 15 times earnings, which would result in an approximately 13% sell-off from current levels.

Time will tell what 2015 earnings actually turn out to be for the 500 companies in the Standard and Poors 500 (S&P 500) index, but here are some reasons to be concerned about corporate earnings and the continuation of the bull market during 2015. There are three primary concerns.

  • The rising United States Dollar is causing companies located in the United States that do business overseas to reduce their earnings estimates. When foreign profits are converted into United States Dollars, they are converted into less Dollars as the United States Dollar increases in value.   This trend, which has hit multi-national corporations that do business throughout the world quite hard, started showing up during the 4th Quarter 2014 earnings season. The trend is expected to continue well into 2015, as the strengthening United States Dollar shows no signs of letting up.
  • Falling oil prices might be good for the overall United States economy and certain sectors of the economy, such as the restaurant and entertainment sectors; however, drastically lower oil prices are having a big impact on the overall reported earnings for companies in the Standard and Poors 500 (S&P 500) index.   Companies in the oil and natural gas sector of the economy make up approximately 10% of the Standard and Poors 500 (S&P 500) index. These companies will report dramatically lower earnings during 2015, due to lower oil prices. This in turn will pull down overall Standard and Poors 500 (S&P 500) index earnings, making 2015 a tough year for earnings growth.
  • The Federal Reserve is expected to raise interest rates during 2015 for the first time since 2006. While the interest rate increases during 2015 are not expected to be large, they are going to cut into corporate profits, since companies have become accustomed to operating in a near zero interest rate environment. Companies will have to pay more for the capital that they need to run their businesses, which in turn will cut into their profit margins and reported earnings.

Will Slowing Corporate Earnings Mean The End of The Bull Market?

End of The Bull MarketThe question that ultimately needs to be answered is will slowing corporate earnings mean the end of the bull market? Since bull markets are fueled by rising corporate earnings, there are valid concerns that 2015 might mark the end of the current bull market, or at least a near-term top until the economic picture becomes clearer.   For the bull market to continue, the macro factors, such as the rising United States Dollar and falling oil prices, will have to stabilize and reverse course. Rising interest rates tend to put a short-term damper on bull market rallies, but their dampening effect is limited over the medium-term, as strong economic growth usually overrides rising interest rates.

Regardless of how much the earnings growth rate slows down in 2015, it appears likely that 2015 is going to be a much more volatile year for the stock market, and any gains are going to be hard fought and likely minimal compared to recent years. While it may not yet be time to throw in the towel and get ready for the next bear market sell-off, 2015 is a time when asset reallocation away from stocks and into other asset classes, such as cash and real estate might make sense.

A general lightening of exposure to the stock market is a prudent approach when earnings growth is slowing. Rising interest rates will open up investment opportunities in fixed income products such as Certificates of Deposit (CDs), but will hurt bond prices, since bonds go down in value as interest rates rise. Beyond shifting into cash during 2015 and buying real estate, there may be investment opportunities in foreign stock markets that have not rallied as much as United States stock markets. This is especially true in European stock markets, as fiscal stimulus by the European Central Bank and signs of a modest economic recovery in Europe may cause European shares to outperform United States shares during 2015.

Stay up to date on stock trading ideas by getting on our FREE eMail list!

By clicking 'Subscribe Now', you agree to our Disclaimer and Privacy Policy. We are 100% Anti-Spam and will never share or sell your information!

Posted in InvestingComments Off on Slowing Corporate Earnings May Mean End of The Bull Market

It Is Time To Start Averaging Into Oil Stocks?

Time To Start Averaging Into Oil Stocks

Averaging Into Oil StocksWith oil prices stabilizing, is it time to start averaging into oil stocks? It appears the answer is yes. The key word to remember is to “average” into oil stocks. This is not the time to go in with both feet and buy a full position in oil stocks. There are a number of factors that could cause oil to fall further in price.   Given the fact that oil has already fallen significantly and bounced several times off of a bottom, oil is showing signs of forming a bottom. With oil showing signs of reaching a bottom it is likely time to start averaging into oil stocks.

Of course, not all oil stocks can be considered good value investments at current levels. Some are legitimately in danger of financial ruin. However, most oil stocks are unlikely to face bankruptcy and are just down because the whole sector is down. The sell-off in oil has taken down both strong and weak oil stocks.   It is the strong oil stocks that an investor should focus on when looking for oil stocks to start averaging into.

Trying to trade oil stocks at current levels can be quite difficult, as oil prices and oil stocks are very volatile while oil finds a bottom from its recent sell-off. Oil prices and oil stocks have literally been on a ride up and down since the beginning of the year. Trading oil stocks should not be the focus of investors seeking to average into oil stocks. The point of averaging in is to get into oil stocks at a decent level, looking for an eventual turnaround in oil prices and subsequently oil stocks.

Demand for oil keeps growing, year after year, while supply for oil is also growing each year. Oil supplies are notoriously unstable, since so much of the world’s oil is produced in unstable parts of the world that erupt into violence and disarray at various times. All anyone who averages into oil stocks at current levels needs is a significant oil supply shock, and they will be on the right side of the oil trade, as oil and oil stocks surge higher on supply concerns.

Even without an oil supply shock, it is only a matter of time before oil supply and demand come into better balance, as low oil prices cause oil wells to be shut down. This shuttering of oil wells and cancellation of new oil drilling projects is causing oil supply to gradually lessen in proportion to demand.   Eventually, beaten down oil stocks will regain the favor of Wall Street and be bid up in price, as increasing oil prices cause their economic prospects to brighten.

Some Ideas For Averaging Into Oil Stocks

Marathon PetroleumHere are some ideas regarding oil stocks to consider averaging into, while oil prices are down and the oil sector is out of favor with investors. There are, no doubt, many good oil companies that have seen their share prices cut considerably by the broad sell-off in the oil sector.

  • Abraxas Petroleum Corp. (NASDAQ: AXAS) has a stock price that is relatively inexpensive, trading at just above $3 per share. The company looks like it will survive the downturn in oil prices, due to the its nimble operations and strong balance sheet.   The company might also be a takeover candidate for its holdings in major oil producing regions, including the Williston, Eagle Ford, Powder River, and Permian basins.
  • British Petroleum BP PLC (NYSE: BP) is a huge international oil company with deep pockets that are more than enough to survive the slump in oil prices. BP has been aggressively cutting costs, including reducing costs from its subcontractors and suppliers. BP’s cost cutting efforts leave the company in an excellent position to benefit once oil prices recover.
  • Halliburton (NYSE:   HAL) is a big player in the oil services sector. The company has used the downturn in oil prices to grow even bigger, as they are in the process of merging with another big company in the oil services sector, known as Baker Hughes. Halliburton provides services and products related to the exploration, development, and production of oil to companies worldwide.
  • Marathon Petroleum Corp. (NYSE: MPC) is another oil company that is becoming leaner through cost cutting in reaction to the downturn in oil prices. The company’s efficiency efforts are expected to add to its earnings over the next few years, which should provide a nice cushion for the stock.
  • Valero Energy Partners L.P. (NYSE: VLP) is in the oil refining business. While the company’s business and profit margins have been impacted by the turmoil in the oil markets, there is still strong demand for the company’s refined products. A number of Wall Street analysts have raised Valero to a buy recently, since the company is expected to continue growing revenue and earnings in the current oil price environment.
  • Apache Corp. (NYSE: APA) has used the slump in oil prices to reposition itself in the oil exploration and production market in North America by shedding weak assets and buying strong assets. These moves should allow the company to prosper in the years ahead.   The company has a strong balance sheet and seems well positioned to ride out the decline in oil prices.
  • Exxon Mobil Corporation (NYSE: XOM) has emerged as one of the safest ways to play the oil price decline. As the world’s largest integrated oil company, Exxon Mobil has the financial resources to weather the economic storm in the oil markets. In fact, Exxon Mobil will likely emerge stronger than ever, as the company buys smaller competitors on the cheap. If there is one oil stock that stands above the rest for averaging into oil stocks, it is Exxon Mobil.

Stay up to date on stock trading ideas by getting on our FREE eMail list!

By clicking 'Subscribe Now', you agree to our Disclaimer and Privacy Policy. We are 100% Anti-Spam and will never share or sell your information!

Posted in InvestingComments Off on It Is Time To Start Averaging Into Oil Stocks?

Mid-Cap Stocks Are The Best Place To Invest For Long-Term Gains

Mid-Cap Stocks Are The Best Place To Invest To Book The Highest Gains

Mid CapsAn analysis of stock market returns indicates that mid-cap stocks are the best place to invest for long-term gains.  This is for a variety of reasons, which are outlined below.  Regardless of the reasons, it is important for investors that are looking to increase their long-term investment gains by the greatest amount possible to understand what history has shown regarding investment returns for various classes of stocks.

In other words, mid-cap stocks outperform the rest of the stock market when it comes to measuring stock market performance by the size of the companies, using the companies’ market capitalization as a measurement metric.   The market capitalization of a company is derived by multiplying the number of outstanding shares by the current price of the stock. When this is done, stocks can be classified in the following categories: micro-cap, small-cap, mid-cap, and large-cap. Out of these market capitalization categories, history shows that mid-cap stocks perform better than all other categories over long periods of time. This is independent of the type of business the companies are in, and includes just their market capitalization.

The Great Performance of Mid-Cap Stocks Over Time

Mid Caps Vs Small CapsSince the 2000 stock market top, mid-cap stocks have outperformed small and large-cap stocks, with mid-cap stocks gaining 145% since then. This statistic is even more impressive when you consider that severe bear market sell-offs have occurred during some of the years since 2000, yet mid-cap stocks have fared very well over this period of time. Since 2010, mid-cap stocks have posted impressive returns of 19 percent annually, which is better than small and large-cap stocks, on average.

Mid-cap stocks are good growth investments because many companies that are classified as mid-caps are at a mature stage in which they experience rapid growth in revenue and earnings. It is these types of growth stories that get Wall Street investors excited, which causes mid-cap stocks to get bid up in price.   Companies that fall into the mid-cap category of stocks also have the advantage of being able to restructure and reinvent themselves more easily than large-cap companies. Additionally, they are able to raise funds more easily than their smaller cousins in the small-cap realm and tend to have more stabile and diversified revenue streams than small-cap companies. These factors make mid-cap stocks the sweet spot in the world of stock investing.

Mid-cap stocks also offer some protection from global financial turmoil and currency fluctuations, since mid-cap companies do a majority of their business within the United States. Unlike their larger cousins, large-cap stocks, mid-cap companies have little revenue and earnings exposure to such things as a slowdown in Europe or a surging United States dollar. Mid-caps are primarily focused on the United States and therefore generally track the performance of the economy of the United States, which makes it easier for investors to understand the economic forces that affect their stock prices.

Investing In Mid-cap Stocks Using Funds

Mid Cap StocksInvesting in mid-cap stocks is not exactly like investing in stabile big-cap blue chip stocks. While most mid-cap stocks represent healthy and growing companies, there is a risk that some mid-cap companies could face financial difficulties, especially during hard economic times, and their stock prices could suffer as a result.

To avoid taking a hit to an investment portfolio from a mid-cap stock that sours, investing in mid-cap stocks using Exchange Traded Funds (ETFs) and mutual funds is a highly recommended way to spread the investment risk among numerous mid-cap stocks. The key is to find mid-cap Exchange Traded Funds and mutual funds that beat the stock market averages to benefit from the outperformance that investing in mid-cap stocks brings. It is also important to find Exchange Traded Funds and mutual funds that have low annual fees, since the lower fees add up to additional gains in your investment portfolio, especially when compounded over many years.

The following is a sampling of Exchange Traded Funds and mutual funds that focus on mid-cap stocks. The performance of mid-cap stock funds are usually compared to the performance of the Standard & Poor’s MidCap 400 index, which is an index that measures the performance of the mid-cap sector of the United States equity markets and includes some of the most high profile mid-cap stocks.

The iShares Core S&P Mid-Cap ETF (NYSE:   IJH) tracks the track the S&P MidCap 400 index with similar allotments of share holdings as the index.   Since IJH is a passively managed Exchange Traded Fund, it has an extremely low annual management fee of 0.14%.

The Vanguard Mid-Cap ETF (NYSE: VO) seeks to track the performance of the benchmark CRSP U.S. Mid Cap Index that measures the investment return of broadly diversified mid-capitalization stocks.   Yet another passively managed Exchange Traded Fund with an impressively low annual management fee of only 0.09%.

The iShares Russell Mid-Cap ETF (NYSE:   IWR) tracks the investment results of the Russell MidCap Index, which includes the 800 smallest capitalization stocks in the Russell 1000 Index. IWR is a passively managed Exchange Traded Fund with an annual management fee of 0.20%.

The Vanguard Strategic Equity fund (VSEQX) invests in mid-cap stocks. This mid-cap mutual fund has consistently beaten the Standard and Poors 500 (S&P 500) average. One thing that makes the Vanguard Strategic Equity fund stand out amongst mid-cap mutual funds are the very low fees that the fund managers charge of just 0.28 percent, which are especially low considering the fact that it is an actively managed mutual fund.   The industry average for this category is 1.3 percent annual management fees.

Stay up to date on stock trading ideas by getting on our FREE eMail list!

By clicking 'Subscribe Now', you agree to our Disclaimer and Privacy Policy. We are 100% Anti-Spam and will never share or sell your information!

Posted in InvestingComments Off on Mid-Cap Stocks Are The Best Place To Invest For Long-Term Gains

Sign Up for Text Message Alerts

By clicking 'Join Now', you agree to our Disclaimer and Privacy Policy. We are 100% Anti-Spam and will never share or sell your information!

Follow Us on





Trade With…

© 2022 MJ Capital, LLC | All rights reserved