The stock market has proven to be a great way for ordinary people to build up wealth over time. If get-rich-quick schemes work, it’s usually the party on the other side of the bet. But investing in large companies at reasonable prices can be a great way to get rich over time.
It can be as simple as investing through index funds for some who don’t have the time or inclination to get involved. But identifying good values and great companies can help drive returns even further. Below are five equity investments that could offer a diversified way to beat the S&P 500 Index in the coming years and decades.
Some people want others to manage their money and invest in Warren Buffett’s Berkshire Hathaway (BRK.A 0.43%) (BRK.B 0.05%) it’s almost like having a fund manager. But it comes with additional benefits. Berkshire has brilliant leadership with Buffett and Vice President Charlie Munger, who have been mentoring their eventual successors for years. It also offers a mix of equity ownership and liquidity-generating operating assets.
It owns manufacturing and retail operations, an energy and utilities business, BNSF railways and insurance. It also holds significant investments in a broad mix of companies that include several banks, Apple, Coke, American Express, as well as car manufacturers. Buffett and Munger also enjoyed buying Berkshire stock. The company spent over $ 51 billion to repurchase approximately 9% of its shares in 2020 and 2021. Its businesses continue to thrive, with operating earnings growing more than 19% year-over-year in the first six months. 2022. These share buybacks continued into 2022, albeit at a slower pace. During the first half of the year, Berkshire spent an additional $ 4.2 billion on buybacks.
Two consumer favorites
Walt Disney (DIS 0.66%) And Objective (TGT -0.52%) have been struggling recently, but these names have proven they can successfully navigate their businesses in many different environments. Disney is pouring money into its streaming services as it builds that business segment. While its streaming business isn’t profitable yet, the company can fund that growth from its other segments. In its fiscal third quarter 2022 report for the period ending July 2, 2022, Disney said its theme parks are thriving. For the nine-month period ending that date, its parks, experiences and products segment nearly doubled revenue year over year. Importantly, the revenues of the parks segment were also 9% higher than in the same nine-month period before the pandemic in 2019.
The target stock took a recent hit after creating excess inventory trying to overcome supply chain constraints. But the company addressed the situation directly with investors and showed confidence in its plan while increasing the dividend by 20%. Target’s dividend is one of the reasons why an investment is worth considering despite the risks. After increasing the dividend for 51 consecutive years, the company is on the elite list of Dividend Kings.
While past performance is not a prediction of future results, Berkshire, Disney and Target have treated shareholders well for a long time. All three stocks have easily beaten the S&P 500 in terms of total returns, including dividends, since 2000.
Tap into future trends
The electric vehicle (EV) sector appears to be just starting out and it would make sense to participate. Tesla (TSLA 3.59%) he was the pioneer and he is the obvious leader. The company isn’t just sitting around waiting for others to catch up. CEO Elon Musk aims to sell 20 million electric vehicles annually. The company is only now upgrading its third and fourth manufacturing facilities, and Musk’s goal is to have up to 12.
Tesla is expanding its product offering with its Semi Truck and Cybertruck which are expected to start sales this year and next respectively. It also has a growing energy business that supplies Megapacks for energy storage and solar generation products. Tesla nearly ran out of money when it was ramping up its Model 3 vehicle mass production. But it posted a net profit of $ 5.5 billion in 2021 and only surpassed it in the first six months of 2022.
Some investors may want to speculate on another electric vehicle name as the industry itself is just taking off. Like Tesla, based in China Nio (NIO -0.14%) narrowly avoided bankruptcy just a couple of years ago. Although he is still losing money, he had about $ 8 billion in cash on his balance sheet as of June 30, 2022. Nio has struggled with supply chain problems and a drop in demand as China continued to lock down cities due to COVID-19 cases arise.
But those short-term struggles aren’t a reason to avoid the stock as part of a diversified portfolio. It continues to launch new vehicles and has started expanding its exports to Europe.
While Nio remains a very high risk investment, the risk is tempered as part of this group of five stocks. A bad result can be overcome by the balance of these names. And the stock market has shown that if it diversifies appropriately, that’s how investors can get rich over time.
American Express is an advertising partner of The Ascent, a Motley Fool company. Howard Smith has positions in Apple, Berkshire Hathaway (B shares), Nio Inc., Target and Walt Disney. The Motley Fool has positions and recommends Apple, Berkshire Hathaway (B shares), Nio Inc., Target, Tesla and Walt Disney. The Motley Fool recommends the following options: long January 2023 calls $ 200 on Berkshire Hathaway (B shares), long January 2024 calls $ 145 on Walt Disney, long January 2024 calls $ 47.50 on Coca-Cola, long March 2023 calls $ 120 on Apple, short January 200 $ 2023 places on Berkshire Hathaway (B shares), short calls from $ 265 in January 2023 on Berkshire Hathaway (B shares), short calls for $ 155 in January 2024 on Walt Disney and calls to short from $ 130 March 2023 on Apple. The Motley Fool has a disclosure policy.