Last year, my individual stocks returned just over 33%.

Compare that to the S&P 500’s returns of 16% — including dividends. (For better or worse, beating the S&P 500 seems to be the goal of stock pickers and money managers everywhere.)

Of course, beating the index for one year is like taking the lead in the first inning of a baseball game. It is a good start, but you haven’t won the game.

It’s your returns over decades that matter. Even great investors such as Bill Miller and Warren Buffett fall short of the index from time to time. But the tools I used to beat the S&P 500 index last year are the same tools I used to invest an initial $100 in 1994, slowly building a sizeable portfolio. 

Here are the investing principles I’ve used to succeed.

Go Long
When you think long-term, think decades. I still have virtually every stock, bond, mutual fund and ETF I’ve ever bought. In fact, in more than 20 years of investing, I’ve only sold a security for one of two reasons.

First, I’ve sold a few securities as part of tax planning. And second, I sold some investments years ago that were loaded with fees. As a neophyte investor, I didn’t appreciate the importance of keeping fees low (more about that later).

As an example, I didn’t sell a single investment during the 2008 stock market crash. On the contrary, I continued buying through the down market — and I’ve made a very nice return in recent years. Many people I know sold during the bear market because they were fearful — only to regret their decision years later.

Be Cheap
Watch expenses like a hawk. Early in my investing years, I made the mistake of buying mutual funds loaded with fees. Once I realized the folly of my ways, I began tracking the expense ratios. Today, I use a site called Personal Capital to keep tabs on expenses. Regardless of which tool you use, the key is to know exactly how much your investments are costing you.

Several years ago, I lowered my overall expenses to 0.48%. With the help of index funds, ETFs and individual stocks, today my expense ratio is 0.15%. … Over a lifetime of investing, even 50 basis points can make a huge difference in the size of your portfolio.

Be Unpopular
Remember when Facebook (Nasdaq: FB) went public? It was all the rage. The problem was that people confused popularity with a sound investment. Facebook was the former, not the latter, at least at its offering price.

Sticking with unpopular investments has paid off nicely. As an example, I purchased shares of iShares Dow Jones US Home Construction (NYSE: ITB), which is a housing ETF, when everybody was fleeing real estate like rats from a sinking ship. The ETF returned just over 78% last year. Purchasing shares of Citigroup (NYSE: C) when the banking industry was under attack also has paid off handsomely.

The key is to avoid chasing the fads. That prevents you from buying high and selling low.

Be Everywhere
So far I’ve talked about individual stocks and industry-specific ETFs. Most of my portfolio, however, is invested in a diversified basket of mutual funds and ETFs. For most investors, a good mix of low-cost stock and bond funds is the best approach for several reasons.

First, a diversified portfolio will help an investor stick to his or her strategy during a bear market. Being a long-term, buy-and-hold investor does not come naturally to most people, myself included. But the right investing strategy can help you stay the course during a stock market storm.

Second, most people don’t want to spend the time it takes to pick individual stocks. Not only must considerable time be spent before a purchase, but the portfolio must be carefully managed. In contrast, a portfolio of index funds is a lot like a Ronco rotisserie oven — set it and forget it.

Action to Take –>  My strategy should help you build a lasting portfolio. Mutual funds and ETFs make it easy to invest in a variety of asset classes. For example, with funds it is easy to invest in foreign developed and emerging equities, emerging debt, real estate investment trusts (REITs) and commodities.

This article originally appeared on InvestingAnswers.com:
“My Portfolio Just Crushed The S&P… Here’s How Yours Can, Too“

P.S. — Have you heard about the $1.7 trillion “Dividend Vault“? Simply put, it’s the easiest way we know to collect thousands of dollars in dividends each month for the rest of your life. To learn more, click here.