Growth companies and speculative stocks can add some serious drive to your portfolio when they are in the market's favour. However, they can also become a huge problem when concerns start to enter the market or when their upwards momentum begins to dry up. Those gains can come crashing down much faster than they went up.
It can happen so suddenly too. Just look at the recent volatility in companies like REA Group Limited (ASX: REA), Carsales.com Limited (ASX: CRZ) or XERO NZ FPO (ASX: XRO), which plummeted with other tech stocks around the world in what many perceived to be the bursting of the tech bubble. Such events act as a strong reminder of the importance of maintaining a strong portfolio, built to last through the toughest of times.
That is where blue-chips come in. In addition to providing a steady income stream in the form of dividends, their stock prices are also far less volatile than those smaller or mid-sized companies, which are generally the first to fall when the going gets tough in the market.
Here are three which are currently trading at reasonable prices which you should seriously consider adding to your portfolio today:
Telstra Corporation Ltd (ASX: TLS): Although its shares have rallied strongly over the last three years, the telecommunications giant is still amongst the best blue chips stocks you can buy. The company's superior customer service levels are still attracting customers away from rivals while it is also set to continue benefiting from society's increased reliance on broadband and smartphone services. Trading at $5.20 a share, it offers an incredible 5.5% fully franked dividend yield, which in itself is greater than what you would expect from most term deposits.
Insurance Australia Group Limited (ASX: IAG): What better way to add a little insurance to your portfolio than by buying IAG. Since hitting a high of $6.25 back in November, the shares have since retracted to $5.69 (down 9%) giving you a prime opportunity to buy. The insurance group reported a 39% increase in net profit for the six months ending December 2013, and looks set for another successful year after forecasting 3% gross written premium growth and a margin of 14.5%. Given the stock's recent pullback, you could now take advantage of its fully franked 6.2% dividend yield.
Amcor Limited (ASX: AMC): The global packaging company is also a good bet for investors. Demand for its products will rise when the Australian dollar inevitably falls against the US greenback, while it will also benefit from the improving global economic outlook. Priced at $10.32, the company yields a solid 3.9% dividend.
Foolish takeaway
By no means am I predicting that the market will crash, but it is always important to be prepared in case. While it is easy to get caught up in the gains that can be realised from growth companies, don't ever underestimate the need to maintain a strong foundation for your portfolio.
