The best time to start investing is the present (if you haven’t already), but this is particularly true for recent college graduates. The one advantage adults in their 20s have over famed investors like Warren Buffett, Cathie Wood, Bill Ackman or anyone else will be time in the market.
The power of compounding returns can help you turn what are small investments now into $1 million or more by the time you retire. To do that, you’ll need to let your investments grow and compound for 30, 40 or more years.
Many college grads enter the workforce with mountains of debt, a high cost of living, and the likelihood of lower income. However, it truly doesn’t take much to get started investing, and it doesn’t have to be difficult.
Here are the three best stocks for college students who’ve recently graduated to capture long-term growth.
1. Amazon
Amazon (NASDAQ:AMZN) has been one of the best-performing stocks since it reinventing retail in the 1990s. Since going public in 1997, Amazon has had an astounding 32% average annualized return across 27 years.
Not only is Amazon the far-and-away leader in e-commerce; it also has the largest cloud-computing business through Amazon Web Services.
As a market leader in two completely different and growing markets, Amazon is poised to continue its success for years to come. The e-commerce industry is expected to grow by about 10% annually through 2030, while cloud computing is anticipated to expand by 17% annually.
With a forward P/E of 39, Amazon is about as cheap as it’s been in a couple of years.
2. Microsoft
Microsoft (NASDAQ:MSFT) ushered in the PC revolution some 40 years ago with its Windows operating system, and it is currently the largest company in the United States. Since going public in 1986, the company has generated an average annualized return of 24.5%.
For some perspective on that, the S&P 500 has an average annualized return of 8.5% since then.
Like all great companies, Microsoft has sustained its dominance by adapting to the times. About a decade ago, the company started to focus on cloud computing, which has been its major revenue driver ever since.
Although Microsoft is still second to Amazon in cloud computing, it has been able to close the gap with Amazon and widen the gap with third-place Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL).
Microsoft’s growing strength in the cloud business is due to early adoption of artificial intelligence, which set it apart from its competitors and allowed it to gain market share. Through its partnership with OpenAI, Microsoft is on the cutting edge of AI technology and should ride the AI revolution to continuing success.
3. Berkshire Hathaway
Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) is the company that Warren Buffett and his late partner Charlie Munger built. Buffett is known as one of the world’s greatest investors, and that is evident in the portfolio he and his team have built over the past 50 years.
The conglomerate’s $331 billion stock portfolio has had an average annual return of about 20% since 1965. Additionally, the portfolio of nearly 70 diversified companies Berkshire owns — from GEICIO to Dairy Queen to railroads and construction companies — is built to perform well in all market types.
Since 1996, Berkshire Hathaway stock has returned 10.8%, which pales in comparison to the other two on this list but beats the S&P 500. What is great about Berkshire Hathaway is that it performs well when the larger market doesn’t, so it gives investors some support when other stocks are falling.
At age 93, Buffett won’t be there forever, but the succession plan including long-term lieutenants Greg Abel and Ajit Jain has long been in place.
Starting in your early 20s or right out of college and investing as little as $50 per month in one, two, or all three of these stocks is one of the best decisions you can make.
