The Formula for Building Long-Term Wealth
April 25, 2008 – by Richard Band
Growing your wealth in a stock market like ours today isn’t about chasing the latest and greatest investment or about dumping all of your money into a giant global conglomerate.
It’s about finding the perfect portfolio allocation for you and your investment goals—and it’s a lot simpler than you think!
That’s because there’s one formula Wall Street pros have followed for years to help their clients build wealth in both bull and bear markets and today, I’m going to give you that formula, along with my top stock pick to test it out!
The Magic Formula for
Perfect Portfolio Allocation
While it sounds a lot like rocket science, “Asset Allocation” is just a fancy Wall Street term for how investors should divide their portfolios among the three major asset categories: stocks, bonds or cash.
// By use of this code snippet, I agree to the Brightcove Publisher T and C
// found at http://corp.brightcove.com/legal/terms_publisher.cfm.
var config = new Array();
* feel free to edit these configurations
* to modify the player experience
config[“videoId”] = null; //the default video loaded into the player
config[“videoRef”] = null; //the default video loaded into the player by ref id specified in console
config[“lineupId”] = null; //the default lineup loaded into the player
config[“playerTag”] = null; //player tag used for identifying this page in brightcove reporting
config[“autoStart”] = false; //tells the player to start playing video on load
config[“preloadBackColor”] = “#FFFFFF”; //background color while loading the player
* set the player’s size using the parameters below
* to make this player dynamically resizable, set the width and height as a percentage
config[“width”] = 340;
config[“height”] = 300;
/* do not edit these config items */
config[“playerId”] = 1519720127;
With literally thousands of stocks, bonds and mutual funds to choose from, picking the right investments can confuse even the most seasoned investor!
There are large company stocks (also known as “Blue Chips”), smal-cap stocks, and mid-caps in between.
Investors can then choose between U.S. stocks or foreign companies or among value-oriented stocks that are selling cheap or growth stocks from companies that are expanding their market share. The choices are almost endless.
However, the single most important decision you’ll ever make as an investor is how much of your portfolio you should be investing in stocks.
The Formula for Long-Term Wealth
As founder and editor of Profitable Investing, my mission is to help investors earn top returns on their investments, with safety, and I have to say, over the years I’ve been pretty good at it!
In fact, through good times and bad, my recommendations for conservative investors have grown 1,100% since 1984.
So how do I do it? What’s my secret? The secret is… it’s no secret at all! It’s actually a simple mathematical formula that financial pros have been using for years:
Simply take the number 130 and subtract your age. This is the exact percentage of your portfolio you should be investing in stocks.
For example, a middle-age 40-year old investor should be allocating 90% of their portfolio in stocks. Go ahead and try it and then compare it with your actual situation.
Often, investors who do the math, discover that they’re too heavily weighted on one side of the stock-bond divide. If your portfolio is out of balance, take advantage of your cash reserves to build up your holdings in the area that needs strengthening. Then, the remainder of your portfolio can then be evenly divided up into bond and cash.
So, you’ve done the math, and balanced your portfolio using the 130 – your age formula. Now what? Here one stock to test the waters…
One Stock to Test the Waters
Like I mentioned above, there are literally thousands of stocks of all different sizes and categories to choose from. I’ve been steering my Profitable Investing subscribers towards tax-sheltered Master Limited Partnerships, otherwise known as MLPs.
MLPs yields are just too good to ignore–even with the Fed cutting interest rates. In some case, MLPs are paying well over 7%.
So what exactly is a Master Limited Partnership? MLPs pay essentially no federal income tax on their own. Instead, they pass along to you, the limited partner, your share of the partnership’s income and deductions. Result: Typically, the bulk of the cash distribution you receive from an MLP is sheltered from current tax.
I’m a big fan of MLPs and some of my favorites include companies that operate oil pipelines, natural gas and other petroleum products. In fact, here’s one of my favorite MLPs that has the potential to jump 30% in the coming year:
Buckeye Partners (BPL)
Now Buckeye Partners (BPL) is a very conservative partnership, that I’ve been buying for years. BPL is a pipeline that transports refined petroleum products, including gasoline, jet fuel, diesel fuel and natural gas liquids, to name a few. I’ve been recommending it since 1990, so over the last eighteen years Profitable Investing subscribers have earned a tremendous return on BPL. Looking for more major-league MLPs and their buy prices? I featured three of them in my latest report, My Top Three Stocks to Buy Now! which you can download absolutely free.
I’m a big fan of MLPs and think every investor should include them as part of a well-rounded, balanced portfolio. If you want to learn more about MLPs, then you’ll definitely want to sign up for your risk-free trial subscription to Profitable Investing below!
If you’ve ever wondered how to buy the right stocks and then organize them into a powerful income-producing portfolio, Profitable Investing can make your investing dreams come true! Join Profitable Investing today and discover how to create the right asset allocation for your portfolio from the very start.Sign up for your risk-free trial subscription today!