Got $5,000? Buy and Hold These 3 Value Stocks for Years

It’s a common misconception that in order to accumulate wealth in the stock market, you need to do two specific things: invest a large sum of money and put that money into stocks that have lots of growth momentum.

However, as Warren Buffett has said, it is not necessary to do extraordinary things to get extraordinary results. In fact, with just a $5,000 investment spread across a few tried-and-true value stocks, you might be surprised at how much you could end up with.

The best overall dividend stock in the market?

I’ve called Realty Income (O -0.16%) the best overall dividend stock in the market, and for good reason: It’s an excellent combination of income, safety, and growth potential.

If you aren’t familiar, Realty Income is a real estate investment trust, or REIT, that owns thousands of single-tenant commercial properties, most of which are occupied by retail tenants. But not just any retail.

Realty Income specifically targets tenants that are recession-resistant and that aren’t vulnerable to e-commerce disruption. Just to name a couple of examples, drugstores like Walgreens (WBA -2.78%) and discount stores like Dollar General (DG -0.48%) are some of Realty Income’s top tenants.

The proof is in the performance. Since it listed on the New York Sock Exchange in 1994, Realty Income has generated a remarkable 15.1% annualized total return and has increased its dividend for 99 consecutive quarters. It yields about 4% annually at the current stock price and makes monthly dividend payments, making it an excellent choice for investors who rely on their portfolio for income, or who plan to do so eventually.

If I could buy only one stock

Berkshire Hathaway (BRK.A -0.87%) (BRK.B -0.78%) has produced phenomenal returns for investors over the years, generating total returns of more than 3,600,000% (not a typo) from 1965 through the end of 2021.

While Berkshire’s next 56 years aren’t likely to produce a similar result, as the numbers have become too large, there’s no reason to believe the Buffett-led conglomerate won’t continue to deliver market-beating performance over time.

Berkshire is like an all-in-one investment portfolio in a single stock, with most of the 60-plus subsidiary businesses and $350 billion stock portfolio hand-selected by Buffett himself. Berkshire isn’t going to make you rich overnight, but it uses a tried-and-true investment style that can certainly help you build wealth over time.

Massive long-term potential

Last but certainly not least, Digital Realty Trust (DLR -1.73%) is another REIT. It specializes in data center properties and is one of the largest real estate owners of any kind in the world.

If you aren’t familiar, think of data centers as the physical “home” of the internet. When you upload photos to your social media or access a cloud-based software program, all of that data has to live somewhere, and that’s where data centers come in. The simple explanation is that data centers provide secure and reliable facilities for companies to house servers and other networking equipment.

To put it mildly, the number of connected devices around the world is exploding, and the sophistication and volume of data is growing fast, which should create long-tailed demand for these properties. Since going public in 2004, Digital Realty has already produced 2,200% total returns for investors, and it should still have plenty of room to grow in the coming years.

How much can your $5,000 investment grow?

Now, it might seem like these are relatively “boring” investments, and compared to some high-growth tech companies, that might be a fair assumption. However, when you measure your investment returns in decades, they are anything but boring.

Assuming they just match the historical returns of the S&P 500, your $5,000 investment could grow to nearly $13,000 in a decade, $33,600 in 20 years, and over $87,000 in 30 years. And that’s based on just one $5,000 investment; imagine if you could set aside $5,000 every year. Plus, this assumes the stocks will match the S&P’s performance, while in reality all three have handily beaten the overall stock market’s returns over time.

One of the core principles of value investing is to buy great companies and hold on to them for as long as they remain great companies. And if you can do that, the rewards can be tremendous.

Matthew Frankel, CFP® has positions in Berkshire Hathaway (B shares), Digital Realty Trust, and Realty Income. The Motley Fool has positions in and recommends Berkshire Hathaway (B shares) and Digital Realty Trust. The Motley Fool recommends the following options: long January 2023 $200 calls on Berkshire Hathaway (B shares), short January 2023 $200 puts on Berkshire Hathaway (B shares), and short January 2023 $265 calls on Berkshire Hathaway (B shares). The Motley Fool has a disclosure policy.

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