Sometimes, low effort can equal better returns in the stock market.
There is a counterintuitive feature of the stock market. It doesn’t necessarily reward those who put in the most effort. Just because someone puts in eight hours a day staring at screens and trading does not mean they will generate good returns. In fact, studies show that most day traders underperform investors who passively invest in index funds. Spending your whole life working tirelessly only to lose to someone who makes one investing decision a year (to buy an index fund) does not sound like something I’d want to do.
Personally, I’d rather be the person sitting on the beach with a portfolio of buy-and-hold stocks or index funds I am confident will do well over the long haul. Here are three stocks I think belong in a forever portfolio that you can buy in 2025 and hold for the rest of your life.
Alphabet: the most dominant technology company
The first stock that would go into my forever portfolio is Alphabet (GOOG 1.62%). The technology company is used by the most people on the planet, with seven separate services that have over 2 billion users. The company is well diversified, owning not just its flagship Google Search app but YouTube, Google Cloud, and plenty of other services that send profits up to the parent company.
Investors have worried about Google Search disruption in the last few years. Companies in the artificial intelligence (AI) space have invested tens of billions of dollars to try to dethrone Google. So far, these investments haven’t made much of a dent in Google Search’s market share, which still stands at around 90% worldwide.
With a culture of innovation and its focus on the long term with major investments in AI research, quantum computing, and self-driving cars (it owns Waymo), I am confident Alphabet will still be humming along decades from now. Today, investors can buy shares of Alphabet stock at a price-to-earnings ratio (P/E) below the S&P 500 index average of 30. The stock currently has a P/E of 26 and a forward P/E — an earnings ratio based on forward analyst estimates — of 22. This looks like a steal for such a dominant company growing earnings at a double-digit rate.
American Express: betting on premium credit cards
Perhaps the most durable company in this group is American Express (AXP 0.35%). Founded all the way back in 1850, the company has been around for longer than anyone reading this has been alive. I think it will be around long after we are all gone, too. American Express is now one of the leading premium and travel credit card companies in the world.
Last quarter (the third quarter of 2024), management shared that American Express added 3.3 million new credit cards to its network. It now has an estimated 145.5 million cards in circulation around the world. Using its scale, American Express is able to attract wealthier clientele with its travel airport lounges and other premium travel perks, which competitors have trouble replicating.
Relationships with credit card companies can last a long while, with many people remaining customers with American Express for decades. Today, American Express trades at a P/E of 22, which like Alphabet is below the market average. Management expects to grow earnings per share (EPS) by over 10%+ annually over the long term. With this in mind, now looks like a perfect time to start a position in American Express.
GOOG PE Ratio data by YCharts
LVMH: durable luxury spending
Lastly, we have LVMH Moet Hennessy Louis Vuitton (LVMUY -1.45%), or just LVMH. The luxury conglomerate owns a variety of luxury brands including Louis Vuitton, Dior, and Tiffany’s. It has been a huge winner with the expansion of luxury leather goods to new markets outside of Europe, but especially in East Asia.
As the world gets richer, people have more money to spend on luxury items such as leather handbags. While many frugal value investors will read this and think these items are a waste of money, spending on luxury goods to signal status will probably always be a part of human nature. As long as LVMH keeps nurturing these brands properly, people will spend their discretionary budgets on their products.
LVMH stock is in a drawdown due to a slowdown in spending in China, one of its largest markets. While this may be a headwind for a while, luxury spending will bounce back and can grow along with the global economy. This drawdown is a perfect time to strike with a stock that usually trades at a premium valuation. As of this writing, LVMH has a P/E ratio of 22, which like the other two stocks on this list is below the market average. LVMH is a better company than the average stock in the S&P 500.
I think Louis Vuitton, Dior, and these other brands will stand the test of time, which will lead to strong stock returns for LVMH shareholders over the long haul.
American Express is an advertising partner of Motley Fool Money. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Brett Schafer has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet. The Motley Fool has a disclosure policy.
