5 blue chips for the long haul

There are many types of risk, you can't avoid them all, but history shows these 5 companies are strong but conservative ways to grow your wealth.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Every seasoned investor knows you cannot make a worthwhile investment without accepting some level of risk. When investing in the stock market, risks can be presented in a variety of fashions.

Common types of risk include:

Foreign-exchange risk – fluctuations in currencies can consume profits and make them losses.

Specific risk – does the company have a business model which is unsustainable or fragile?

Country risk – if an Australian company ventures overseas, can it adapt to the different laws and regulations?

Market risk – are the shares traded infrequently resulting in large amounts of share price volatility?

Interest rate risk – some stocks react badly to changes in the official interest rate.

Political risk – is the company likely to suffer from a change in political orientation, e.g. McMillan Shakespeare Limited (ASX: MMS) recently suffered a massive setback in its share price as a result of proposed changes to novated leases by the former government.

All of these types of risk need to be considered before making an investment, but as you can see, it's impossible to avoid them completely. History has shown that although debt is not inherently evil, companies which maintain healthy balance sheets and adapt to changes in the market are most likely to outperform in the long run.

In addition, Aussie investors – like many throughout the world – find comfort investing in businesses they know and use. So when interest rates tumble they're likely to jump on the biggest name stocks. At current prices there are a number of big companies that are relatively safe investments.

Telstra Corporation Ltd (ASX: TLS) is one stock which I am quite bullish on, simply because of its long-term tailwinds and brand recognition. It pays a legendary dividend and has forecast steady earnings growth in the near term – perfect for a long-term income investor.

When it comes to familiarity and simplicity, Woolworths Limited (ASX: WOW) is one stock investors search for.  Consistent earnings, coupled with dividends and steady growth, mean it is a stock which could easily find a place in many low risk portfolios.

Another retailer, Coca-Cola Amatil Ltd (ASX: CCL), is one stock which benefits from worldwide legal protection on the distribution of its branded beverages. It has well managed exposure to foreign markets and pays a quality dividend, it can be considered a low risk company.

Mining stocks are generally considered high-risk, high-reward investments, and although history is no guarantee of future success, BHP Billiton Limited (ASX: BHP) has proven to be the most consistent big miner on offer. Unlike Rio Tinto Limited (ASX: RIO) and Fortescue Metals Group Limited (ASX: FMG), it has diversified its earnings across many commodities which limits downside risks considerably.

If a great track record and diversification is what you want, then Washington H. Soul Pattinson & Co. Ltd (ASX: SOL) is what you need in your portfolio. WHSP is one of the oldest stocks listed on the Australian Securities Exchange, but that hasn't stopped it from being innovative and growing profits. In the last decade it has averaged an annual earnings growth of 9.1%.

Foolish takeaway

It's important to remember that no stock is void of risks. The best strategy to avoid risk with publicly listed companies is to buy a good stock at the best possible price. Don't make rushed decisions. Remember patience doesn't lose you money.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »