The Motley Fool's Stock Advisor newsletter is one of the most popular stock recommendation services on the market today. There are good reasons for this – it consistently outperforms the S&P 500 and is accessible to investors of all skill levels.
If you're new to Stock Advisor or thinking about trying this stock picking service, this guide is for you. We'll explain how to use Stock Advisor to build a market-beating portfolio and manage your investment risk.
What is a Fool's Stock Advisor?
Stock Advisor is The Motley Fool's premier stock picking newsletter. Since its launch in 2002, the service has returned 520% compared to 134% for the S&P 500 (as of December 2023).
The main thing you get with Stock Advisor is two new stock buy recommendations every month. You can also get tips on which stocks in the portfolio to double and which stocks to buy for a new portfolio.
All of the recommendations are centered around explosive growth stocks that you can keep in your portfolio for years to come.
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How to use a stock advisor
There are two ways you can incorporate a stock advisor into your investment strategy.
If you are a novice investor or just want to know which stocks to invest in, you can simply buy Stock Advisor Recommendations. This is an easy, low-maintenance approach to building a portfolio that has a good chance of beating the market.
If you are a more advanced investor or want to put together a custom portfolio, you can use Stock Advisor to generate investment ideas. You can pick and choose recommended stocks to buy or mimic a stock advisor's investing style while picking your own stocks.
Motley Fool investing principles
Before you start investing with Stock Advisor, it's important to understand some basic principles of The Motley Fool's investing system.
Hold shares for more than 5 years
When The Motley Fool recommends a stock, it intends for investors to hold it for at least five years. The companies Stock Advisor focuses on are growth stocks, so they will take time to reach their full potential. There are many stocks that have been in Stock Advisor's portfolio since its launch in 2002.
Since you are holding for the long term, there is no need to panic about short-term ups and downs. Stock prices will sometimes fall – that's part of investing – but you should see these declines as opportunities to double down rather than sell.
Below is an example of Tesla stock picks. The stock has returned more than 1,000% over the past five years, but it has seen some declines along the way as well. If you are building a new position, you should keep this in mind and consider your risk tolerance.
Buy 25+ companies
Investing in at least 25 companies across multiple sectors enables you to diversify your portfolio and mitigate risks by making one unsuccessful choice. You don't necessarily need to invest in 25 companies right away, but you should reach that number within a few months of joining Stock Advisor.
Stock Advisor Picks are not one-time recommendations. You should continue to invest in picks over time and apply dollar cost averaging to get the best average stock price.
You should also continue to increase the amount you have invested in your portfolio over time. The more you invest, the more likely you are to rise in the long term.
Build your foundation
The best way to get started with Stock Advisor is to use our foundational stock lists and rankings to start building your portfolio.
This list of foundation stocks contains 10 stocks that The Motley Fool recommends that every investor hold in their portfolio. You can buy these stocks at any time and reinvest in them as your portfolio grows.
The rankings list highlights the top 10 stocks currently in Stock Advisor's portfolio that the analyst team believes are great buys right now. You can invest in these stocks for the first time or double invest in them if they are already in your portfolio.
If you want more stock ideas, you can explore all of our previous Stock Advisor picks. Depending on market conditions, you may be able to find stocks that are currently valued at less than the price originally recommended by Stock Advisor.
Add new positions
You can add to your portfolio by purchasing two new stock options issued by Stock Advisor each month. You don't need to fully implement these new recommendations right away, but you can invest in them over the course of weeks or months to average your dollar position.
You should also keep checking the rankings list to get updates on stocks you already own to invest in further. If you have extra money to invest, The Motley Fool always recommends doubling up on winning stocks in your portfolio.
There are a few additional things to consider when building your portfolio with Stock Advisor.
While you should aim to invest in at least 25 stocks and keep adding new ones, it's important to consider how your money is distributed across those stocks. Ideally, you should have roughly the same amount of money invested in each stock in your portfolio.
Strong stocks may end up making you invest more over time, and that's okay. However, you should avoid having an unbalanced portfolio where one or two stocks make up half of your portfolio. This reduces your diversification and increases your risk.
The Motley Fool offers some tools to customize the right portfolio based on investment time horizons and goals.
Create your own investment portfolio
It's important to remember that you don't have to buy every stock that Stock Advisor recommends. Although you can follow the recommendations exactly, it is also a good idea to skip selections sometimes if you feel they are not right for you.
You should also feel free to invest in stocks outside of the Stock Advisor universe. You can invest in other companies you like or allocate a portion of your portfolio solely to a stock advisor's recommendations. For example, you could invest half of your portfolio in an index ETF and create a portfolio using the other half.
Read Stock Advisor's research reports
Each stock advisor pick comes with a research report, and the service provides regular updates about the stocks in the portfolio. These reports and updates are worth reading. It's important to know what you own and why so you can feel confident in your portfolio during periods of volatility.
Consider using stop losses
A stock advisor rarely issues sell alerts, and sometimes holds stocks that have lost more than 50% of their value since recommending them. While the team of stock advisors may believe that losses are only temporary, not every investor will be able to afford such losses.
If you are not comfortable risking 50% or more of an investment, consider developing your own risk management plan. For example, you can use stop-loss orders to limit your losses to 20% per stock before removing it from your portfolio.
Conclusion: How to Use the Motley Fool Stock Advisor
Stock Advisor is a great tool for investors of all experience levels who want to build a portfolio that outperforms the market. You can use the service's foundational stocks and ranking lists to start your portfolio, then add new stocks to your portfolio with new recommendations each month. When using Stock Advisor, remember to have a long-term mindset, diversify your portfolio, and keep investing in winners.