With potentially more volatile weeks, months or years ahead of us, choosing defensive stocks can give you peace of mind.
With interest rates in the midst of a trough, term deposits have become less appealing to many everyday investors, who favour security of their money over anything else. If investors decide to continue to keep funds bottled up for the sake of safety, many will miss the opportunity to invest their money in higher yielding investments and will pay the price of hindsight.
Now, I'm not saying to dump term deposits altogether, because we should always spread our wealth amongst our assets and cash in the bank is the easiest to access. An individual who pays 32.5% tax and has $100,000 in a term deposit that pays 4.5% interest annually (without factoring bank fees into the calculation) will only earn approximately $1,000 or 1% once we take inflation at 2% into consideration.
Here are five ASX-listed stocks that not only minimise risk but also have and continue to provide investors with solid growth prospects.
Westfield Group (ASX: WDC) is an international shopping centre giant with over 105 shopping centres throughout Australia, UK, US, New Zealand and Brazil. It has over $25 billion in market capitalisation, more than many Australian banks. Its dividend pays you 4.3% per year but its future expansion looks promising as well. Based on its past performance, investors are realising its potential.
Telstra Corporation (ASX: TLS) has gone from strength to strength in the past 12 months. Not only is it the biggest benefactor of the National Broadband Network but it also has the biggest client base in the country. In a future where people need to stay interconnected, Telstra is well placed to grow but reassures investors with its $61.22 billion market capital. If that wasn't enough, Telstra also pay a fully franked dividend of 5.7%, meaning it pays your tax (30%) on the investment by giving you tax credits.
Commonwealth Bank of Australia (ASX: CBA) needs no introduction as the biggest bank in Australia, ahead of rival Westpac (ASX: WBC) by approximately $13 billion in market capital, this is a safe place to invest your money. CBA will pay you 4.9% to invest your money with it, but this is expected to increase in coming years.
BHP Billiton (ASX: BHP) is favoured by many astute investors but has gotten a bad rap in news outlets in past months. One thing is for sure, it's a huge Australian company that has potential for growth. Bigger than Westpac, this company is focused on mineral extraction and sells it to foreign markets that don't have the resources to fuel their own countries. Although BHP is potentially the most volatile of the five stocks mentioned, it's still one of the safest. One way or another, countries need electricity and BHP is one of the world's largest resources companies that help deliver a brighter future.
Last but not least is Woolworths (ASX: WOW), which could easily be interchanged with rival Wesfarmers (ASX: WES). The fresh food people also know how to do business, with their share price rising 46% this past year. At current prices they will pay you 3.6% for your investment in addition to giving you tax credits. Food is a basic essential that we all need, investing in either of the big two supermarkets is a "Safeway" to invest your money.
These five stocks are iconic Australian companies and as any seasoned investor knows, you should diversify your wealth. Having a portfolio that does not succumb to industry wide pressures is a smart way to get defensive. Looking back 10 years since March 2003, the S&P/ASX 200 (ASX: XJO)(^AXJO) has increased over 80% — if you're in it for the long run it seems riskier to not invest.
The Australian Financial Review says "good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit." Get "3 Stocks for the Great Dividend Boom" in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!
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The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool'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. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool contributor Owen Raszkiewicz does not own shares in any of the mentioned companies.
