Edited by Kate Boehmet
Recently, a close friend of mine asked me about which stocks I would buy for the next 5 years. That is a pretty hard question to answer. I usually try to buy cheap stocks with low P/E ratios. I am not looking for speculative gains, but a modest capital gain of 15 percent to 20 percent is more than enough for my portfolio. Warren Buffet was once asked about the perfect holding period; he replied that the perfect amount of time to hold was "forever."
I am following Warren Buffett's steps. I consider dividends as a nifty bonus for shareholders. Historically, the stock market's annual return has been 11 percent. Therefore, any return higher than 11 percent is a success for me. Since we are talking about long periods of time, diversification is essential. In fact, diversification is the optimal investment strategy, according to the modern portfolio theory.
It might be claimed that an effective portfolio ought to include a combination of stocks and bonds, as well as ETFs and real estate investments. There are nearly limitless possibilities at all levels of risk and return. However, I think, every well-educated investor should be able to achieve a certain level of diversification by choosing a few stocks from different sectors. As I am not in favor of paying commissions to fund managers, the portfolio I am proposing consists of stocks only. Included are the stocks with strong roots in the market and the potential to grow for many years. Dividends received from these stocks can also be reinvested to achieve compounded growth in capital.
There are five stocks included in this imagined portfolio; each stock gets a 20 percent allocation of the capital. These stocks have all already shown exceptional performance during tough periods and have a lot of
