Low-Risk Investments to Beat Wall Street at Its Own Game

Wall Street loves dumb money. It excels at creating hype and stirring up fear and greed, then waiting for small investors to make investment mistakes. It churns out expensive, enticing products and strategies that, in many cases, don’t yield any better results than you could achieve on your own.

Investment strategist Keith Fitz-Gerald believes you can beat Wall Street at its own game while taking back ownership and control of your investments—as long as you start thinking the way successful professional investors do.

To help you find relatively safe, long-term investments and get the best returns, Bottom Line Personal asked Fitz-Gerald how he neutralizes Wall Street’s advantages and what safe investments he favors now based on expertise he has accumulated over the past four-plus decades as an investor, trader, consultant and strategist in global markets. Here are five of his core strategies to outsmart Wall Street and get the best return on investment…

Strategy #1: Play to win—not to avoid losing.

Most investors are so worried about losing money that they diversify far too much. Wall Street, of course, is happy to sell and collect fees on an endless stream of mutual, index and exchange-traded funds (ETFs). You wind up owning hundreds, even thousands, of stocks, that produce returns that just match the broad stock market’s performance. If you are okay with that, fine. But there’s a cost to being average and not trying to beat the market—your portfolio has exposure to lots of mediocre, even terrible, companies. Smarter: Professionals play to win by concentrating their bets. If you own more than a few dozen stocks, you’re overdiversified and limiting returns with little or no potential advantage from risk reduction.

Strategy #2: Buy the best…ignore the rest.

I believe there are only a few dozen world-class companies worth considering for your investment portfolio. What to look for in these companies…

• “Must have” products and services the world cannot live without.
• Visionary CEOs who find ways to grow profits in any economic environment.
• Fortress-like balance sheets and strong cash flow.
• Tendency to generate big sustainable profits for long periods.

When you discipline yourself to invest in only the best businesses—a process I call “buy the best, ignore the rest”—it makes you and your money a much harder target for Wall Street’s manipulators and increases your odds of success over time.

Strategy #3: When in doubt, zoom out.

Wall Street loves to suck you into short-term “doom, gloom or boom” narratives. Example: For most of 2024, Wall Street has flip-flopped when it comes to predicting how many times the Federal Reserve would cut interest rates this year. And each time, there was a forecast for a massive market rotation out of tech stocks and into stocks of undervalued small companies that benefit from lower rates. But that’s all just a lot of jawboning.

I encourage investors to take a 30,000-foot view because that’s how you sidestep the angst many investors feel when the headlines get rolling. Rates are for traders…“results are for investors.” And best-of-breed companies will continue to produce plenty.

Strategy #4: Chaos creates opportunity.

The stock market is the only “store” on Earth where people fear a sale. Individual investors fear volatility, but professionals understand that it’s a source of great opportunity over time. In fact, a double-digit pullback in stocks occurs in two-thirds of all years. The best time to buy is at points of maximum pessimism. This is especially true for great companies you have on your radar.

Example from my portfolio: Investors have repeatedly underestimated iPhone maverick Apple (AAPL). It has suffered massive drops in stock price that have almost always turned out to be remarkable buying opportunities when viewed through the rearview mirror. In 2022, Apple stock fell 27% because of concerns that the global market for iPhones was saturated. Well, guess what? The stock rose 48% in 2023 and another 18% in 2024 (through August 27). Apple has just rolled out its artificial intelligence (AI) strategy, which includes a Siri digital assistant offering text summarization and image generation as well as the first ever on-board AI. That feature alone could motivate hundreds of millions of consumers to upgrade their iPhones…and generate billions in additional profit potential the market hasn’t yet priced in.

Strategy #5: Missing opportunity is always more expensive than trying to avoid risks you can’t control.

Investors wonder constantly if now is a “good time to buy.” Some have been holding cash waiting for the right moment to get back in the market since the drop in 2022…2020…even the 2007/8 financial crisis. That’s a mistake. There’s always a lurking catastrophe for investors to fear, ranging from hyperinflation to a tech crash to a recession. The truth is, you need to be “in to win or you won’t.” If you want to lower risk, don’t try to time the market. Instead, harness volatility using tactics that allow you to invest as much money as you can as soon as you can and as consistently as you can. For example…

• Stick with great companies that offer solid dividends and exhibit low beta. Beta measures how closely a stock has risen and fallen over long periods versus the S&P 500 index. A beta of 1.0 indicates that a stock’s price fluctuations equal the index’s volatility. Low-beta stocks tend to fall less in market pullbacks, stabilize faster and recover more quickly than the overall market. Example from my portfolio: Pharmaceutical giant AbbVie (ABBV) sports a beta of just 0.62, which means it is about 40% less volatile than the S&P 500. The company offers stable cash flow from blockbuster immunology and oncology drugs, as well as its brand-name aesthetics business with products such as Botox.
• Use dollar-cost-averaging. You invest a set amount each month or quarter no matter what the stock market is doing, rather than diving in all at once. This simple strategy keeps frayed emotions out of the equation, which is more important than ever.
• Try value-cost-averaging (VCA). A closely related cousin of dollar-cost-averaging created by Michael Edleson, a former Nasdaq chief economist and Harvard Business school professor, VCA takes more effort but can produce higher returns. How it works: You decide you want your portfolio to grow by, say, $300 a month. The first month you invest $300 just like a dollar-cost-averaging strategy. But each subsequent month, your investment amount can vary. If the market drops and your $300 investment is worth only $290, then you contribute $310 next month to make up the difference. In the months where you’ve made more than your target, you would have the option to contribute nothing at all.

The Best and Brightest Stocks

People are constantly asking which are the hot stocks, but that’s the wrong question. What you want to think about is stocks that will be there when you need them.

Long-term investors should consider positions in these seven companies…

1. AbbVie (ABBV). A low-volatility pharmaceutical giant that offers blockbuster drugs in immunology, oncology and aesthetics, AbbVie has increased its dividend 52 years in a row (including during its time as a subsidiary of Abbott Laboratories). Recent yield: 3.14%. Recent share price: $195.92.*
2. Apple (AAPL) has just rolled out its new AI strategy including a revamped Siri digital assistant and the first-of-its-kind on-board AI. Both features could motivate hundreds of millions of consumers to upgrade their iPhones. Recent yield: 0.44%. Recent share price: $228.03.
3. Chevron Corp (CVX). The oil-and-gas leader has one of the strongest balance sheets in the industry. Plus, it’s one of the world’s largest alternative energy investors, allocating $500 million toward breakthroughs in carbon transformation and low-carbon fuels. Recent yield: 4.39%. Recent share price: $146.95.
4. JP Morgan Chase (JPM) is arguably the most dominant bank in the US with more than $4.1 trillion in assets and 60 million American households using its banking and investment services. What really intrigues me is Onyx, the company’s digital clearinghouse service that uses blockchain, the technology behind Bitcoin. Onyx enables seamless global exchange of digital assets and information for financial institutions and wealthy individuals. Recent yield: 2.3%. Recent share price: $220.18.
5. Lockheed Martin (LMT). War is a growth industry unfortunately, as we have seen with the Russia-Ukraine war, China’s intention to reunite with Taiwan and the ongoing crisis in the Middle East. The world’s largest defense contractor has decades-long multibillion-dollar contracts to manufacture and maintain Patriot Missile Systems and F-35 fighter jets among other critical systems. It is relatively immune to economic ups and downs, offering investors great protection, consistency, and growth. Recent yield: 2.1%. Recent share price: $XX.XX.
6. Microsoft Corp. (MSFT). The software giant has repeatedly reinvented itself and is redefining the markets it serves, from PCs to the Internet to gaming to its cloud computing platform Azure…and now AI. The tech firm has already begun integrating AI into its Windows operating system, used by nearly 1.5 billion computers around the world, to sell supercharged productivity services. Every dollar spent on AI may return $10 to $15 in trickle-over revenue. Recent yield: 0.73%. Recent share price: $413.84.
7. Waste Management (WM) is the largest garbage-collection-and-disposal service in the US, operating more than 260 active landfills and 330 transfer stations. It sounds like a boring, dependable business, but that’s what makes it attractive. Given the immense regulatory hurdles, it is nearly impossible for any competitor to replicate the company’s vast network of landfills. The company also runs one of the top recycling operations in North America…and its recent acquisition of medical-waste services firm, Stericycle, gives Waste Management a footprint in a fast-growing niche. Recent yield: 1.44%. Recent share price: $209.20.

*Performance figures are through August 27, 2024 courtesy of Morningstar, Inc.