4 Investments To Buy And Hold Forever

Summary

• I discuss some of the strategies favored by Warren Buffett and Charlie Munger.
• I discuss how I would implement those strategies into my portfolio.
• I share my four favorite buy-and-hold forever investments.
• One of them you have probably never heard of before.
• I am Samuel Smith, Vice President of Leonberg Capital. I lead the investing group High Yield Investor where we do our best to find the right balance between safety, growth, yield, and value.

Warren Buffett once said, “Our favorite holding period is forever.” Buying and holding outstanding investments for very long periods of time is the ideal way to compound wealth for several reasons.

First, you avoid frictional losses from buying and selling stocks. While commission-free trading has eliminated direct trading fees, there are still bid-ask spreads and regulatory transaction fees that can chip away at returns. Second, holding investments long term allows for tax-deferred compounding. Whenever you sell a stock at a profit, you pay capital gains taxes, which reduces your investable capital. However, if you never sell, the money that would have otherwise gone to the government in taxes continues to compound, leading to higher total returns over time. Third, long-term investing removes emotional decision-making from the process. When investors leave the option open to buy and sell frequently, they are more likely to let emotions drive their decisions rather than adhering to rational value investing principles. As a result, they often buy high and sell low, rather than the opposite, which is what a good value investor aims to do.

Meanwhile, Buffett’s longtime partner, Charlie Munger, advocated for having concentrated portfolios as he believed that an investor’s 20th, 30th, or 50th best idea should not be anywhere close to as good as their first, second, third, or fourth-best idea. By combining these two principles — buying only a few high-conviction investments and holding them indefinitely — investors can maximize their compounding potential and set themselves up for Buffett- or Munger-like long-term total returns.

To clarify, I do not personally practice either of these principles in my portfolio because I follow a unique investing strategy that focuses on high-yield stocks, and I hold most of my investments in IRAs and my 401(k), which removes the tax implications of frequent trading. Additionally, I adhere to strict value investing principles, where my buy and sell decisions are entirely determined by valuation. I also believe that high-yield stocks are among the easiest to value, which makes it easier to follow disciplined investing principles and avoid emotional decision-making.

However, if I did not follow my specific approach, I would lean much more strongly in favor of the Buffett-Munger method of investing. With that viewpoint in mind, here are four investments that I would pick if I could only buy and hold four forever right now.

Investment #1

The first investment I would select is a diversified, low-cost ETF to serve as the core component of my portfolio. For many, this would be an S&P 500 index fund such as the SPDR S&P 500 ETF Trust (SPY), which has a low 0.09% expense ratio, or the Vanguard S&P 500 ETF (VOO), which has an even lower 0.03% expense ratio. However, I prefer the Inspire 500 ETF (PTL) as – like SPY and VOO – it provides broad diversification with about 500 holdings and similar sector weightings, including a heavy 28.22% allocation to technology, with Broadcom (AVGO) as a leading AI-focused holding. Additionally, it follows a biblically responsible investing screen while still charging a very low 0.09% expense ratio, making it comparable to SPY. As a Christian, I would prefer to invest in PTL over SPY or VOO because it provides similar diversification at a similar expense ratio while aligning better with my values.

Investment #2

The second investment I would select is one that produces more yield and acts as a strong dividend growth machine. Many investors would choose the Schwab U.S. Dividend Equity ETF (SCHD) for this purpose, which offers a dividend yield about three times higher than the S&P 500 while maintaining a low 0.06% expense ratio and a strong 11% ten-year dividend-per-share CAGR. While I believe SCHD is an excellent fund and could fill this role well, if I had to pick, I would rather own Brookfield Asset Management (BAM). The reason I prefer BAM is that it is essentially a leveraged bet on real assets (which are largely lacking from SCHD’s portfolio as well as PTL’s and SPY’s portfolios) while offering a dividend yield of 2.92%, which is fairly close to SCHD’s yield.

Moreover, BAM has stronger dividend growth potential than SCHD, with management guiding for 15%+ dividend-per-share growth for the foreseeable future. Although its yield is slightly lower than SCHD’s, its superior growth rate will quickly bring its income level in line with SCHD while also offering much greater total return potential. Additionally, BAM provides better diversification, as it focuses on infrastructure, renewable power, private equity, real estate, and insurance—sectors largely absent from broad-based ETFs like SCHD or PTL.

Investment #3

The third investment I would select would focus on generating more passive income. This is important to me because, if I were to buy and hold my investments forever, I would want reliable income to help facilitate retirement, reducing dependence on selling shares and avoiding excessive reliance on Mr. Market for an appropriate sequence of returns. There are many options for this. One choice could be a diversified bond fund like the Vanguard Total Bond Market Index Fund ETF (BND), but its 3.67% yield is relatively low. High-yield bonds or junk bond ETFs like the SPDR Bloomberg High Yield Bond ETF (JNK) offer higher yields, such as 6.55%, but their risk-reward profile is not particularly attractive. Additionally, I have recently written about why I believe funds like the PIMCO Dynamic Income Fund (PDI) are heavily overleveraged and overpriced. While its 13.57% dividend yield looks attractive, I do not see its risk-reward profile as promising.

Another alternative would be business development companies (BDCs) like Ares Capital (ARCC) or Main Street Capital (MAIN). These are attractive income stocks that benefit from floating-rate interest exposure, but they are currently not cheap. Additionally, their dividend growth is somewhat uncertain, and their underlying holdings are relatively low quality, making them vulnerable to a recession.

As a result, I believe the two best options for this category are either Realty Income (O) or Enterprise Products Partners (EPD). Both companies have A- credit ratings, well-diversified portfolios, proven management teams, and mid-single-digit dividend growth CAGRs that are expected to continue for the foreseeable future. Additionally, both have impressive dividend growth track records, with more than 25 consecutive years of distribution increases.

However, if I had to choose just one, I would select EPD. Its current distribution yield is 6.4% compared to 5.8% for O, and its distributions are tax-deferred due to its MLP structure, providing additional tax advantages. This makes it a particularly attractive long-term income investment.

Investment #4

The fourth investment I would select would be some form of gold. While my preferred way of investing in gold is through leases, which have zero storage fees and actually earn a yield paid in gold, this approach involves investing in products and companies that many investors may find inconvenient and cumbersome. For the purpose of this article, I will instead focus on my favorite gold ETFs.

If I want to sell options against gold, either by selling a put to secure a better entry price while collecting income as I wait for gold to pull back from its recent surge, or by selling calls against an existing position to generate additional income, my first choice would be the SPDR Gold Shares ETF (GLD). While its expense ratio of 0.4% is not the lowest, its options bid-ask spreads are the tightest, and it has the best liquidity among gold ETFs, making it an excellent choice for trading options.

For a simple buy-and-hold position, I would prefer either the SPDR Gold MiniShares ETF (GLDM), which has a much lower 0.10% expense ratio, or the iShares Gold Trust Micro ETF (IAUM), which has an even lower 0.09% expense ratio. Though IAUM has significantly fewer assets under management, both funds offer minimal depletion of investment value over time due to lower management fees.

I like gold as part of a buy-and-hold-forever portfolio because of several significant long-term risks. One of the biggest concerns is the growing power imbalance in the Far East, where China’s increasing dominance could threaten not only regional peace and stability but also the global economy, given that a significant share of global trade flows through the region. Taiwan remains the semiconductor capital of the world, and therefore a Chinese invasion of Taiwan could plunge the global economy into a depression. In such a scenario, gold would likely be one of the best performing investment asset classes.

Beyond the risks in East Asia, geopolitical instability persists in other regions. The ongoing war in Eastern Europe remains a major concern, as any failed peace negotiations could escalate the conflict further. In the Middle East, Iran and Israel continue to engage in proxy conflicts that occasionally escalate into direct confrontations.

Additionally, massive deficit spending in the United States, Europe, Japan, China, and other major economies poses long-term risks to the viability of fiat currencies. Many central banks are increasingly turning to gold as a reserve asset rather than relying on the U.S. dollar or other fiat currencies. This shift supports the long-term case for gold as a store of value, making it an essential hedge in any long-term portfolio.

Investor Takeaway

As this article highlights, buying and holding a select few high-conviction investments can be a highly effective strategy—especially when those investments are chosen wisely. In my case, I would select a diversified ETF in the form of PTL, along with two real asset businesses, BAM and EPD. BAM provides broad exposure to the alternative asset space, particularly infrastructure and real estate, while EPD offers a more focused investment in energy infrastructure, which stands to benefit from AI-driven data center expansion.

Both BAM and EPD should generate solid dividend growth, with BAM expected to deliver strong long-term dividend increases, while EPD provides a higher immediate yield. Finally, my investment in gold would serve as a hedge against fiat currency devaluation, the de-dollarization of the global economy, and the increasing threat of major geopolitical conflicts.

While I may not follow this exact portfolio myself, the core principles behind it—including intelligent diversification, a balanced mix of current yield and dividend growth, meaningful exposure to gold, and the ability to generate income from gold investments—are key components of my portfolios at High Yield Investor.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

This article was originally published on this site

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