One of the biggest dangers investors face when building a portfolio is doing something foolish on a grand scale!
All investors make mistakes and at times are unlucky – the key is to understand that losses can (and most likely will) occur – hence correctly sizing your stock positions is vital.
Keeping your smaller capitalisation, riskier stock ideas as smaller weightings within your portfolio is the key. Taking a massive position on a risky stock in the hope of a big win and it not paying off can be painful! That's what you need to avoid.
Unless you are going to run a super-diversified portfolio, I'm talking 100 stocks at 1% each, a more sensible strategy for many investors is to allocate the majority (say perhaps 70%) of their portfolio to solid, larger stocks that have defensive earnings, strong balance sheets and pay maintainable and growing dividends.
Here are three such stocks which fit that bill and should help you fool proof your portfolio from major losses.
ResMed Inc. (CHESS) (ASX: RMD) has a long and near uninterrupted history of growing sales revenue, what's more the company's pipeline of further sales growth is strong. The firm only began paying dividends in 2012, however from a low base the dividend payments look set to grow meaningfully.
Brambles Limited (ASX: BXB) has a superbly diversified revenue base with operations across many regions and customers. The continuous rental of its pallets and containers provides great cash flow to the group which should support dividend growth in the future.
Telstra Corporation Ltd (ASX: TLS) is a cornerstone holding for many portfolios. A review of its growing revenue line which has supported its profits and dividends highlights why Telstra is so popular with investors. While the company will continue to face fierce competition from smaller more nimble telcos, the long-term tailwind of increased demand for data should support Telstra's dividend into the future.
