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2 shares young investors should buy instead of Insurance Australia Group Ltd

If you’re a young investor, you have time on your side, and you (hopefully) won’t have to rely on your investments as your primary source of income. As a result, you can focus on growing your portfolio for retirement, without being beholden to mature dividend-paying shares like Insurance Australia Group Ltd (ASX: IAG).

Here are two shares that, as a young investor myself, I would buy before Insurance Australia Group:

Retail Food Group Limited (ASX: RFG)

Retail Food Group owns several of Australia’s biggest franchises, including Donut King, Gloria Jeans, Brumby’s, Michelle’s Patisserie, and Crust pizza. The company is still growing its franchise footprint in Australia, as well as rolling out franchises overseas in a variety of locations. Further profit growth has been generated by acquiring the businesses (coffee roasting and baking) that supply the company’s franchisees.

As with some other franchise business models recently, this company has also come under market scrutiny which I believe could be why shares have been sold down recently. Still, with a 5.8% dividend at today’s prices, Retail Food Group doesn’t have to achieve a lot from here to be a market beater.

Nearmap Ltd (ASX: NEA)

Nearmap is an unprofitable aerial mapping company that is expanding in Australia and the US. Its products are designed to result in lower costs and greater efficiency at its customers, with the theory being that this will effectively wed them to the company’s subscription business model. It appears to be working so far, with continued sales growth in both Australia and the US.

Nearmap enjoys very high gross profit margins on its sales and has a mountain of cash that will hopefully see it through to break-even and profitability. A highly scalable platform (each customer added requires a smaller increase in costs) should result in a greater percentage of each new sale dropping down to the bottom line as profit, which is wonderful for shareholders.

Top 3 ASX Blue Chips To Buy In 2017

For many, blue chip stocks means stability, profitability and regular dividends, often fully franked..

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The Motley Fool's in-house analyst team has poured over thousands of hours worth of proprietary research to bring you the names of "The Motley Fool's Top 3 Blue Chip Stocks for 2017."

Each one pays a fully franked dividend. Each one has not only grown its profits, but has also grown its dividend. One increased it by a whopping 33%, while another trades on a grossed up (fully franked) dividend yield of almost 7%.

If you're expecting to see the likes of Commonwealth Bank, Telstra and Wesfarmers shares on this list, you'll be sorely disappointed. Not only are their dividends growing at a snail's pace, their profits are under pressure too due to the increasing competitive environment.

The contrast to these "new breed" blue chips couldn't be greater... especially the very real prospect of significant share price gains, something that's looking less likely from the usual blue chip suspects.

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Motley Fool contributor Sean O'Neill owns shares of Nearmap Ltd. and Retail Food Group Limited. The Motley Fool Australia owns shares of Nearmap Ltd. and Retail Food Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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