Expert: Paul Henneman - 3/19/2009

Question
hi i have can afford to invest about 15k right now.my question is what would be a good stock to buy and hold for the next 20 years.my daughter is 3 and i want to do this for her future.thanks

Answer
Rik
   Thank you for your question!
This is a very difficult question to answer, as each investor is different. The most important question to ask yourself is how much risk you are willing to take, and what returns you are looking for. The one hard and fast rule in investing is that to get high returns, you must take on risk. Low or no risk investments return much less.
    However, with a 20 year time frame, risk may not be a bad thing. Some years will be bad, but some very good if you invest in the stock market. Overall, your investments should grow nicely. But be prepared for one or more years of terrible performance from time to time.
    I would suggest two routes that you could follow. The first has more risk, but could earn substantially more return in the years to come. Investing in a single stock for that long period of time would be unwise, no matter how big a company is. Things can change alot in 20 years. Instead, you may want to look at an index fund. These are funds that trade an entire stock market index, such as the S&P500. By purchasing one ticker symbol, you effectively hold all of the 500 stocks in the S&P index. For example, the ticker SPY is an ETF (Exchange Traded Fund) that fits this description. Your performance will match the overall performance of that major market index.  You could earn as much as 20% or more on this type of investment in a year, or you could lose that much (or more). For example, the S&P500 is down well over 10% in value since the beginning of the year. Over a long time horizon, typically the S&P500 index averages about 11% a year.
    The other direction you could take is a much safer type of investment, such as a CD (certificate of deposit) or money market account. These types of investments earn much less, perhaps under 4% a year. But they are perfectly safe and will never lose money.
    Your funds will grow to a much larger amount with a higher interest rate, and the difference between 4% and 11% average annual return, compounded over 20 years, is huge. But those are average numbers, the difference in risk is also huge.

I hope that this helps get you started. Please do not hesitate to follow up with me if I can be of any additional service,

Best Regards,
Paul Henneman
President
ValuEngine Inc
www.ValuEngine.com