MENU

3 ASX shares retirees should avoid in 2017

I’d avoid Challenger Ltd (ASX: CGF) shares, Aconex Ltd (ASX: ACX) shares and BHP Billiton Limited (ASX: BHP) shares if I were investing for retirement.

Rule #1: don’t lose money

Rule #2: don’t forget rule #1

In the sharemarket, investors make money by holding shares, not buying or selling them. However, successful investing is more about avoiding losses than it is about achieving high returns. So risk management is vital for long-term investors.

Fortunately, with over 2,000 shares on the ASX, one of the easiest ways you can put the odds in your favour is by avoiding overpriced shares.

Here are three ASX shares I’d avoid right now.

Challenger

The Challenger share price has risen from strength to strength over the past few years, as annuities have become a mainstay in retirement portfolios. Most analysts who talk about investing in Challenger describe it as a ‘great strategy to harness the financial power of baby boomers entering retirement’, or something to that effect. However, I doubt many of these analysts have stress-tested their financial models or even understand how the products are affected by changes in the market environment.

Ultimately, by playing the greater fool theory with a company that guarantees an investment return for many years is fraught with risk. While the underlying annuity holders should come away unscathed, history is littered with financial companies getting caught between these guarantees and adverse market conditions. As a litmus test, Challenger is not a company I’d be comfortable investing in with my parent’s money. So I don’t recommend you do it, either.

Of course, that’s just my opinion.

Aconex

There’s a lingering smell around Aconex, despite its 33% fall over the past year. The construction software business disappointed investors when it downgraded its lofty profit growth expectations. While the company is still expected to grow ‘profits’, even if it hits those targets its shares are still very richly priced.

For an $850 million company with little cash flow, I’m surprised it hasn’t fallen further. However, I’ll admit, it does have levers it can pull to improve profitability. But that could take some time and isn’t guaranteed (see above).

BHP Billiton

BHP Billiton forms the bedrock of many Australian share portfolios, but why? Is it iron ore? Its US oil business? Copper? Or coal? In my opinion, the recent rally in the mining giant’s share price has only served to emphasise how volatile and unpredictable commodity prices can be.

It has among the lowest costs in many product groups, which means it is unlikely to go bust. However, despite its scale, it cannot control the price of its products, which makes it pregnable to changes in external market conditions.

There may come a time to buy BHP shares, but it is not now, as prices for its key businesses have skyrocketed over the past year. Look for mine closures, bankruptcies and production cuts as the catalysts for doing further research on the company.

Are you thinking of buying BHP shares? You should try these 3 blue chip dividend share ideas first. They have been hand-picked by our expert analyst.

Just, click here, enter your email address and we'll send you our expert analyst's research report -- completely free.

No payment or credit card details required.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes and encourages your feedback. You can follow him on Twitter @OwenRask. 

The Motley Fool Australia owns shares of ACONEX FPO and Challenger 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.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.