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 that—it’s consistently outperformed the S&P 500 and is approachable for investors of all skill levels.
If you’re new to Stock Advisor or considering giving this stock picking service a try, this guide is for you. We’ll explain how to use Stock Advisor to build a market-beating portfolio and manage your investing risk.
What is The Motley Fool Stock Advisor?
Stock Advisor is the flagship stock picking newsletter from The Motley Fool. Since it launched in 2002, the service has delivered a return of 520% compared to 134% for the S&P 500 (as of December 2023).
The main thing you get with Stock Advisor is two new recommendations for stocks to buy each month. You also get advice about which stocks in the portfolio to double down on and which stocks to buy to get a new portfolio off the ground.
All of the recommendations are centered around explosive growth stocks that you can hold in your portfolio for years to come.
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How to Use Stock Advisor
There are two ways you can incorporate Stock Advisor into your investing strategy.
If you’re a beginner investor or just want to know what stocks to invest in, you can simply buy Stock Advisor’s recommendations. This is an easy, low-maintenance approach to build a portfolio with a good chance of beating the market.
If you’re a more advanced investor or want to assemble a custom portfolio, you can use Stock Advisor to generate investment ideas. You can pick and choose which recommended stocks to buy or mimic Stock Advisor’s investing style while making your own stock picks.
Motley Fool Investing Principles
Before you start investing with Stock Advisor, it’s important to understand a few basic principles of The Motley Fool’s investing system.
Hold Stocks for 5+ Years
When The Motley Fool recommends a stock, they intend for investors to hold it for at least five years. The companies that Stock Advisor focuses on are growth stocks, so they will take some time to reach their full potential. There are several stocks that have been in the Stock Advisor portfolio since it launched in 2002.
Since you’re holding for a long time, there’s no need to panic about short-term ups and downs. Stock prices will drop on occasion—that’s part of investing—but you should see these drops as opportunities to double down rather than sell.
Here’s an example of the stock picks on Tesla. The stock has returned over 1,000% over the past five years, but it has had some dips 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 risk from a single pick that doesn’t work out. You don’t necessarily need to invest in 25 companies right away, but you should reach this number within a few months of joining Stock Advisor.
Invest Continuously
Stock Advisor picks aren’t one-time recommendations. You should continue to invest in picks over time and apply dollar-cost averaging to get the best average price for a stock.
You should also keep growing the amount you have invested in your portfolio over time. The more you have invested, the greater your potential long-term upside.
Build Your Foundation
The best way to get started with Stock Advisor is to use the Foundational Stocks and Rankings lists to start building your portfolio.
The Foundational Stocks list contains 10 stocks that The Motley Fool recommends every investor should hold in their portfolio. You can buy these stocks at any time and re-invest in them as your portfolio grows.
The Rankings list highlights the top 10 stocks currently in the Stock Advisor portfolio that the analyst team thinks are great buys right now. You can invest in these stocks for the first time or double down on them if they’re already in your portfolio.
If you want even more stock ideas, you can explore all of Stock Advisor’s previous picks. Depending on market conditions, you may be able to find stocks that are currently valued below the price at which Stock Advisor originally recommended them.
Add New Positions
You can add to your portfolio by buying the two new stock picks that Stock Advisor issues each month. You don’t need to go all-in on these new recommendations right away, but can invest in them over the course of weeks or months to dollar-cost average your position.
You should also continue checking the Rankings list for updates about which stocks you already own to invest more in. If you have extra cash to invest, the Motley Fool always recommends doubling down on winning stocks in your portfolio.
Additional Considerations
There are a few additional things to consider when building your portfolio with Stock Advisor.
Portfolio Allocation
While you should aim to invest in at least 25 stocks and continue to add new ones, it’s important to think about how your money is spread across those stocks. Ideally, you should have roughly the same amount of money invested in each stock in your portfolio.
Strong stocks might end up with more invested over time, and that’s okay. However, you should avoid having an unbalanced portfolio in which one or two stocks make up half of your portfolio. This reduces your diversification and increases your risk.
Motley Fool offers some tools for proper portfolio allocations based on investment time horizons and goals.
Make Your Portfolio Your Own
It’s important to remember that you don’t have to buy every stock that Stock Advisor recommends. While you can follow the recommendations exactly, it’s also fine to skip picks on occasion if you feel they’re not right for you.
You should also feel free to invest in stocks from outside the Stock Advisor universe. You can invest in other companies you like or only allocate a portion of your portfolio to Stock Advisor recommendations. For example, you could invest half of your portfolio in an index ETF and build a Stock Advisor-based portfolio with the other half.
Read Stock Advisor’s Research Reports
Every Stock Advisor pick comes with a research report, and the service provides regular updates about stocks in the portfolio. These reports and updates are well worth reading. It’s important to know what you own and why so that you feel confident in your portfolio during periods of volatility.
Consider Using Stop Losses
Stock Advisor rarely issues sell alerts, occasionally holding onto stocks that have lost more than 50% of their value since being recommended. While the Stock Advisor team may believe that the losses are only temporary, not every investor will be able to stomach drops like that.
If you’re not comfortable risking 50% or more of an investment, consider putting your own risk management plan in place. For example, you can use stop loss orders to limit your losses to 20% for a stock before you eliminate 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 market-beating portfolio. You can use the service’s Foundational Stocks and Ranking lists to get your portfolio off the ground, 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 your winners.
