Is it possible to build a portfolio today — when you have years or even decades to go before retiring — and then just set it aside, without constant fretting and regular tinkering? Absolutely. And when I sat down to write this article, I had set-and-forget investors in mind. Think of it as ‘The Busy Investor’s Portfolio’ — a basket of some of the best long-term investments to rely on (and not worry about) to help fund your golden years. Let’s take a look at some criteria for a solid, long-term investment… and the seven companies that appeal to me right now. Your pension’s not…
Is it possible to build a portfolio today — when you have years or even decades to go before retiring — and then just set it aside, without constant fretting and regular tinkering?
Absolutely. And when I sat down to write this article, I had set-and-forget investors in mind.
Think of it as ‘The Busy Investor’s Portfolio’ — a basket of some of the best long-term investments to rely on (and not worry about) to help fund your golden years.
Let’s take a look at some criteria for a solid, long-term investment… and the seven companies that appeal to me right now.
Your pension’s not enough
There is regular research released – seemingly monthly – reminding us that many Australians don’t have enough saved up to retire in comfort.
This is where the stock market can be your greatest resource. With time on your side — and the ability to leave your emotions at the door — you can put the market to work for you.
If you want to build a portfolio that will grow steadily over the years — and demand little of your time doing so — then I recommend you look for a few important points. I’ve deliberately included international shares in this list – there are some wonderful businesses listed on overseas exchanges.
A busy investor’s path to freedom
Finding great companies to buy for the long haul doesn’t have to be difficult. Here’s what I like to see:
1. Size and Stability
Bigger companies may lack their smaller counterparts’ growth potential, but they do offer greater security and their shares prices tend to move less dramatically. We also want a track record of solid performance.
Talk about stable: Johnson & Johnson (NYSE: JNJ) has a 118-year history operating a diverse group of healthcare-related businesses. This blue chip is a powerhouse in the US medical, pharma and consumer products sectors, and pays a reliable dividend.
A company this size should have enough established brands and financial resources — strengths less likely to be found at smaller firms — to offset any missteps from new boss Alex Gorsky, but I have confidence in the new exec to deliver for shareholders.
For exposure to the healthcare sector, pharmaceutical giant GlaxoSmithKline (NYSE: GSK) gets my vote. I’m drawn to the strong underlying business fundamentals of this well-known firm, and I’d dub it a great ‘foundational’ share for just about any portfolio. Glaxo also boasts an above-average dividend yield to sweeten the pot.
While many investors look for fast-growers, I’d counter that set-and-forget investors want to see steady, consistent gains in revenue, free cash flow and other key measures. Slow growth won’t make headlines, but it will help prevent the kind of ugly surprises that can torpedo a share price.
Another industry leader I like for the Busy Investor Portfolio is Unilever (NYSE: UN). This consumer-goods company throws off consistently strong cash flow (and a growing dividend) from its core business, and I only see that improving as it strengthens its hold in emerging markets.
3. Competitive advantage, aka ‘the moat’
How well can a company fend off its competitors? The durability of a company’s competitive advantages determines its long-term profitability and performance. The more moat, the merrier.
Tanqueray gin, Captain Morgan rum and Guinness stout are just a few of the powerhouse brands in Diageo‘s (LSE: DEO) cabinet. In fact, the drinks group owns nearly 20% of the world’s top 100 alcoholic brands, which it sells in more than 180 countries. It has secured itself at the top of the industry, and is using its massive marketing budget to make sure it stays there.
With Coca-Cola (NYSE: KO), you’re investing in the world’s most valuable brand (and more than 500 ‘sub-brands’). The strong brand-driven cash flow spills over into earnings and dividends — maybe that’s why Coke caught the eye of US investment legend Warren Buffett, who owns 8.8% (200 million shares) of the company. With truly massive global distribution, Coke has a brand-driven moat that’s hard to beat.
Perhaps most important — and why all seven of the Busy Investor ideas tick this box — you want shares that pay you back through dividends. Look for companies that can provide healthy payouts now and consistent dividend growth over time (without jeopardising the company’s financial health).
My first pick for dividend payers is Telstra (ASX: TLS), which has rivalled Paris Hilton for spending almost its entire public life in the headlines. It’s hard to add much to what’s already been said about Telstra, and the shares have run up recently, but the dividend yield – fully franked – is hard to beat.
Another business showing admirable resilience in this tough retail environment is OrotonGroup (ASX: ORL). This luxury brand-owner and retailer continues to deliver impressive results and similarly impressive dividends.
Market timers need not apply
You’ll notice I didn’t spend any time talking about the price of these seven investments. Not because it doesn’t matter — you don’t want to pay too much for a share, after all — but because it matters less and less over time… and this is a long-term venture after all.
Now that you’re set, you can forget
Let’s not kid ourselves: investing in shares does take some time
But sparing a few minutes a month now and then to set yourself on the path to a good — or even great — retirement is a no-brainer…
…especially in the face of low pensions, rising inflation… and the fact that you and I aren’t getting any younger!
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Scott Phillips is an investment analyst with The Motley Fool. He owns shares in Johnson & Johnson, Coca-Cola, Telstra and OrotonGroup. You can follow Scott on Twitter @TMFGilla. Take Stock is The Motley Fool Australia’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691).
A version of this article, written by Jill Ralph, originally appeared on fool.co.uk