There are a lot of ways for American workers to build wealth. They can shuffle money under the mattress, buy bank certificates of deposit (CD) or bonds, or purchase a house and cross their fingers that it appreciates at a faster pace than the prevailing rate of inflation. But over the long run, no investment vehicle has delivered a higher annualized return than stocks.
If you invest in great companies and allow your investment thesis to play out over many years, if not decades, stocks have the power to make the American worker rich.
Understandably, there’s no singular definition to being rich. For some people, that might mean buying their dream car or owning a boat. For others, “rich” could mean the added value of spending more time with family or not having to worry about paying their monthly bills.
By the time working Americans hit retirement, the following five winning stocks have the potential to make them rich.
Berkshire Hathaway
Sometimes, the best long-term investments are boring. That’s the case with Berkshire Hathaway (NYSE:BRK.A)(NYSE:BRK.B), the conglomerate that’s been run by billionaire Warren Buffett since 1965. In Buffett’s more than five decades at the helm, he’s created over $500 billion in value for Berkshire Hathaway’s shareholders and overseen an annual average return of 20%. In aggregate, we’re talking about a return of closer to 3,400,000% for the Class A shares (BRK.A), taking into account year-to-date gains.
One of the reasons Berkshire is such a successful company is its cyclical ties. A majority of the company’s nearly $323 billion investment portfolio is tied up in technology, financials, and consumer staples. These are sectors that perform really well when the U.S. and global economy are firing on all cylinders. Even though recessions are an inevitable part of the economic cycle, Buffett is keenly aware that periods of expansion last considerably longer than periods of contraction. In other words, the Oracle of Omaha is simply playing the odds.
The other key to Berkshire’s superior returns is its dividend stock ties. While Berkshire doesn’t pay a dividend, quite a few of the companies it’s invested in do. All told, my back-of-the-envelope calculation has Berkshire netting around $5.1 billion in dividend income this year. Based on its initial cost basis, this works out to a roughly 5% yield, which is insanely good, and points to the company’s likelihood of being wildly successful for many years to come.
Intuitive Surgical
Businesses that have clearly identifiable and sustainable competitive advantages are also a smart place to put money to work. Surgical-assisted robotic systems developer Intuitive Surgical (NASDAQ:ISRG) is a perfect example of a company with a dominant presence that can make American workers…
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