One Stock and Two Funds Can Create Lasting Generational Wealth

Sure, buying and selling stocks may be fun, but isn’t the goal to create lasting wealth that can be passed down to descendants? It can be an elusive goal as it goes up and down over time. Sometimes things go sideways and there is a market crash from which some stocks never recover.

So how can investors give their portfolios the best chance of standing the test of time? Diversification is the answer. Simply put, don’t put too many eggs in one basket. Investors can build portfolios with exchange-traded funds (ETFs) that own stocks in many companies, as well as individual stocks from diverse companies that have proven to perform well over the long term.

Consider incorporating these three into your portfolio. Decades from now, you may be glad you did.

1. Invest your money with Warren Buffett

The great investor Warren Buffett built his legacy through holding companies. berkshire hathaway (BRK.A 0.51%) (BRK.B 0.63%), an investment empire with a current market capitalization of $860 billion. The reality is that 93-year-old Buffett won’t be around in a few decades. But Berkshire has staying power that perhaps no other company on Wall Street can match.

First, Berkshire owns many private companies across a variety of industries. Berkshire’s well-known consumer companies include GEICO Insurance, Duracell, Dairy Queen, Fruit of the Loom, and Clayton Homes. Additionally, Berkshire owns vast industrial assets, including railroads, oil and gas pipelines, and utilities. If that wasn’t enough, Berkshire also has a portfolio of publicly traded companies worth more than $370 billion, plus he has $157 billion in cash.

BRK.A Total Return Price Data by YCharts

These many assets generate profits and investment income, all of which flows into Berkshire’s cash vaults and is deployed as Buffett and his management see fit. Berkshire Hathaway stock doesn’t pay a dividend, but it allocates enough resources to outperform its stock price. S&P500 As a long-term investment. Berkshire is one of the few stocks you can buy and forget because your money is tied up in a vast business built to last forever.

2. Don’t fight the market, join the market

many people invest win the market,In other words, S&P500 Indexes are probably the most common investment benchmarks. But frankly, it’s difficult to do that consistently. Buffett himself recommends investing in index funds, which hold shares in all S&P 500 companies. For many investors, investing in his ETFs like the S&P 500 makes sense. Vanguard S&P 500 ETF (VOO -0.51%).

The S&P 500 represents the 500 most prominent companies in the United States. This is not a static list either. A better business replaces a declining company. In other words, this is a turnkey portfolio of the best companies in the world’s most prolific economy. Is the situation sometimes unstable? of course. Bear markets, where stocks fall by at least 20% from their highs, occur several times every decade.

^SPX data by YCharts

But whether it’s a recession, war, or a global pandemic that disrupts entire markets, the S&P 500 has always rebounded and hit new highs. The Vanguard S&P 500 ETF does a great job of tracking its expense ratio, albeit at a meager 0.03%.

3. Diversify into big tech with a single ETF

Big technology companies are driving new industries such as cloud computing and artificial intelligence (AI). That is highlighted by the performance of the “Magnificent Seven” stocks, which collectively move across the market. But instead of trying to predict which of these stocks will be hot (and when); Invesco QQQ Trust (QQQ -0.91%) Instead. This ETF focuses on large technology and innovation stocks.

The “Magnificent Seven” are sprinkled throughout Invesco QQQ’s top holdings. microsoft, apple, Amazon, Nvidia, meta platform, teslaand alphabet It accounts for 40% of the fund’s holdings. The growth of big technology has helped the fund outperform all three major U.S. stock market benchmarks in recent years.

QQQ data by YCharts

This does not guarantee that outperformance will last. Still, AI has the potential to grow into a multitrillion-dollar industry, and these big tech companies have deep pockets to invest and make sure they seize the opportunity. Having long-term, diversified exposure through Invesco QQQ is an easy way to ensure your portfolio is exposed to its upside.