Investing in the stock market can be risky. It's riskier than term deposits, riskier than savings accounts and, some (not me) might say, riskier than property.
So why do so many people buy stocks?
The answer: It is the best way to grow your wealth.
But it's not as risky as some would have you believe. If you buy the right stocks at good prices and hold for more than five years, you mitigate the chances of losing money and maximise your chances of success.
Westpac Banking Corp (ASX: WBC), Telstra Corporation Ltd (ASX: TLS) and Coca-Cola Amatil Ltd (ASX: CCL) are three companies which have stood the test of time and rewarded long-term shareholders. Outperforming the S&P/ASX 200 (ASX: XJO) (INDEX: ^AXJO) when dividends are included. But are they still a buy today? Let's find out.
Westpac: Using conventional valuation measures, Westpac shares are expensive. This is usually excusable if the company is likely to grow profits strongly in coming years. However the bank has little short and medium-term growth prospects. Despite being a largely defensive stock and paying a juicy 5.1% fully franked dividend, a decrease in share price could quickly wipe out any benefit of the dividend it'll pay. I don't think it's a buy at current prices.
Telstra: Like Westpac many investors have flocked towards Telstra's shares in a hope of beating low interest rates and inflation, resulting in rapid share price appreciation over the past three years. However Telstra is in the middle of an exciting transformation with huge amounts of free cash to spend on growth initiatives throughout Australia or Asia. It could also pay down debt, do a share buyback or further increase its dividend. I believe Telstra could make a good long-term investment.
Coca-Cola Amatil: As Australia's biggest drinks bottler and distributor of brands such as Coca-Cola, Mother, Mt Franklin, Powerade, Jim Beam and more, CCA finds a place in many Australian investors' portfolios. After a disappointing 12 months, which has seen its share price fall 23%, it's important to remember why you bought it and determine whether the issues which caused the fall were temporary or something else. I believe they are temporary and people will continue to consume soft drinks, alcohol and bottled water for many years yet. As such, now could be the time to buy (or top up) on CCA shares.
