The Motley Fool: Every Sunday, useful tips on investing
Q: I’m 40 years old and have a diversified portfolio of stocks. If I’d like to retire in 10 years, how many shares should I buy in order to make enough money to do so?
A: Don’t think about the number of shares. What really matters is how much you sock away and how quickly it grows. The quality of the companies you buy into, and how well their stocks perform for you, will make a big difference.
Ideally, try to estimate how much money you’ll need to amass before retiring, and then figure out how you’ll get there. You’ll need to determine how much you need to invest and how quickly that money is likely to grow.
The stock market has averaged annual gains of 10 percent over the long haul, but over the course of your investing time frame of 10 (or 20 or 30) years, it might average considerably more or less.
Remember, too, that retiring at age 50 means you might need to live off your nest egg and retirement income for perhaps another 50 years — and that can be a tall order!
Investing in great companies early in their high-growth stages and then holding them for a long time can deliver huge gains. It’s not impossible, either, for us ordinary investors to find the next great blockbuster stocks. Start by training your eyes to spot innovative companies breaking the rules in their industries.
Here are some ways to do that: Look for the top dog and first mover in an important, emerging industry. Seek sustainable advantages, such as business momentum, patent protection, visionary leadership or inept competitors. Favor strong past stock-price appreciation. Get behind good management and smart backing. Look for strong consumer appeal.
Dear Fool: My dumbest investment was buying 620 shares of an energy company for $0.27 apiece after I got sucked in by a mailer saying, “WE STRUCK OIL.” It’s now selling for $0.06.
Still, at least it got me excited about the stock market. I suck at this so far, but I am only 24, so I have a lot of learning to do. There is a lot of information everywhere, and it’s hard to figure out what’s important and what isn’t.
The Fool responds: Penny stocks get naive investors excited about their potential, but they often have little in the way of growth or profits, and they wipe out a lot of investors.
Don’t fall for ultralow prices — a stock selling for $0.10 per share can easily fall to $0.05, while a $300 stock can double.
It’s good that you didn’t lose too much, and very good that your interest in stocks has been sparked while you’re still young. Unlike most investors, your money can stay invested and growing for many decades.
Big blue-chip companies might not grow rapidly, but they can offer more stability than smaller counterparts, and they often pay dividends, too.
Consider Johnson & Johnson (NYSE: JNJ), founded in 1886, which is much more than Band-Aids and Tylenol.
The company has three main divisions: consumer products, pharmaceuticals, and medical devices and diagnostics.
Its pharmaceutical division has been on fire lately, cranking out consistent double-digit growth rates thanks to products such as Zytiga (treating prostate cancer) and mega-blockbuster Remicade (tackling rheumatoid arthritis and more).
Its blood-cancer drug Imbruvica has received FDA approval and might generate more than $6 billion in peak sales. Other recent approvals include drugs tackling hepatitis C, mantle cell lymphoma and type 2 diabetes. J&J’s medical-device business is set for growth, too, after its massive Synthes acquisition, and the company is shedding its lower-margin diagnostics businesses, such as its blood-test operations. Johnson & Johnson faces revenue losses due to patent protections expiring for some key drugs in the next few years, but its pipeline is cranking out new contenders.