The main principle for long-term investing is entrenched in the "stocks go up in the long run" axiom. It is a fundamental assumption welcomed by investors who regard stocks as more than a medium for quick capital gains; investors who therefore opt to defer unloading shares for the foreseeable future.
However, not all stocks fit the criteria of this ownership investing approach, even though the tenet is that stock prices appreciate invariably over time. Stocks to hold for the long term should be those that represent solid businesses at the outset. In this guide, we list ten such stocks and go on to describe five of them.
Where Can I Trade Long-Term Stocks?
You can buy long-term stocks in any conventional stockbroker account or share-dealing account. You don’t need a specialist broker that offers leveraged contracts-for-difference (CFD) trading or spread bets, and — if you’re a UK investor — you might consider holding these stocks in a tax-efficient trading account such as a stocks & shares ISA or self-invested personal pension (SIPP). You don’t need to worry too much about things like fast trade executions because you’re not going to be day-trading these stocks.
Here are some broker suggestions.
What Are Long-Term Shares?
Billionaire investor Warren Buffett’s investing principle is to find and buy terrific businesses at low prices and hold them forever; collecting dividends while hopefully also benefiting from share price appreciation. Put simply, Buffett’s favourite holding period is forever, which minimises trading costs and means you never have to pay capital gains tax because you never sell your investments.
Some of the features of long-term stocks are that the companies hold a controlling market share, have a competitive advantage, and maintain robust fundamentals. If you can buy shares in these companies as “value” stocks when their share prices are depressed for no fundamental reason, and if you reinvest the dividends along the way, you can potentially enjoy compounded returns and exponential growth.
How to Trade and Invest in Long-Term Shares?
Open a Trading Account
When choosing a broker for long-term stocks, the most important things are that the broker is regulated (because you’ll have to trust them for a long time) and offers the subset of stocks you wish to buy. When you’ve found such a broker, you can easily open an account by filling out a simple online application form and providing any required proof-of-identification documentation.
When choosing stocks to hold for the long term, fundamental analysis (of earnings, dividends, and suchlike) is more important than technical analysis (i.e., chart patterns). Use our list of suggested stocks as a guide for your own fundamental research, then search the list on your broker’s trading platform for the relevant stocks.
You can easily fund your stockbroker account by bank transfer, credit/debit card, or another convenient method such as PayPal. Specify the number of shares you wish to buy of your chosen stock(s), or enter the amount of money you want to invest in each one, then press the “buy” button.
Top 10 Long Term Shares to Trade
Now let’s look at our top 10 long-term stock suggestions:
- Berkshire Hathaway
These are all very familiar names, and now we can dig deeper into five of them.
1. Apple (AAPL)
Apple was the first American company to reach a trillion-dollar market valuation, and for a good reason. Customers who buy an iPhone don't just buy Apple's product, they also get tied into Apple’s ecosystem. This is what makes Apple a solid business, and is why Warren Buffett’s Berkshire Hathaway investment company has a significant stake in the company despite shunning other tech stocks.
2. Alphabet (GOOG)
Just think of the top three things people do on the internet, and you'll probably name one or two of this company's products or services. Alphabet pretty much dominates internet and video searches with its primary subsidiaries: Google and YouTube. The company has also expanded in other areas such as artificial intelligence (AI), cybersecurity, and cloud computing. To challenge Alphabet's commanding position would be an uphill battle for any firm without substantial assets.
3. Amazon (AMZN)
From starting as an online bookstore to becoming the world's largest online retailer, Amazon has proven to be a disruptive force in several industries: music streaming, grocery delivery, TV, and (again) cloud computing. Amazon is the first platform that most retail customers think of when looking to make an online purchase, and this is not likely to change any time soon.
4. Berkshire Hathaway (BRK-B)
You can't go wrong with a company that beat the S&P 500 index in 12 calendar years between 1999 and 2020. This multinational conglomerate holding company led by Warren Buffett owns several profitable companies. Rather than trying to copy Buffett’s investment style, why not just invest in his company? You probably can’t afford even one of this company’s “A” shares, but you should be able to buy the much cheaper “B” shares that have the BRK-B ticker symbol.
5. Microsoft (MSFT)
Microsoft is the world’s largest software company that has historically earned most of its revenue from the Windows operating system and the Office software suite. However, in the past year, Microsoft’s Azure cloud services and Xbox gaming console businesses have delivered better growth than some analysts' estimates.
Expert Tip on Investing in Long-Term Shares“ Although Warren Buffett’s preferred holding period of “forever” means that you’d never have to pay capital gains tax, it could be a good idea to sell just enough shares each year to fall within your annual allowance for capital gains tax. ”- Ron Mendoza
Why Invest in Long-Term Shares?
Holding shares for the long term has several advantages. You minimise trading commissions and time spent trading. You collect dividend income while also hopefully benefiting from share price appreciation.
If you don’t withdraw your dividends, and reinvest them in the same stocks instead, you can compound your returns by earning even more dividend income on the additional shares you bought with your dividend payments. Albert Einstein called compounding the eighth wonder of the world.
Frequently Asked Questions
All regulated brokers have a “know your customer” (KYC) procedure that requires you to prove your identity before your account can be fully activated and you can withdraw your funds.
Long-term stocks are a good investment because they combine dividend income with capital appreciation, and you can pretty much forget about them once you’ve done your initial analysis.
The best way to manage risk in a long-term stocks portfolio is through diversification: buy several such stocks so that you can’t lose all your money if a single stock goes bust.
Legendary investor Warren Buffett invests in long-term shares, and he’s been one of the richest men in the world for decades.
Long-term stocks are not that popular, because they’re seen as “boring” in a world where many novice traders are turned on by the excitement of “day trading”. Buying unpopular stocks can be a good investment strategy because it means the price of those stocks will not have been bid up by speculators.
Stocks are traded on stock exchanges during market trading hours, which are typically 8 am to 4.30 pm (local time) on weekdays.