If you’re new to stock market investing, maintaining a well-rounded portfolio is essential.
Remember it isn’t a sprint but a marathon and thanks to compounding, investors need only achieve a 7.2% pa return, for 10 years, to double a stock portfolio.
Holding a mixture of small, medium and large-cap stocks is a sure way to expose your portfolio to growth without taking on too much risk.
Think of your portfolio as a pyramid, with the biggest and most profitable blue-chips at the bottom, leaving the higher-risk companies at the top. As promising as they may be, it’s important that the amount of “high-risk” investments are kept to a minimum.
Here are five companies I’d gladly recommend to new market entrants.
1. BHP Billiton Limited (ASX: BHP) is Australia’s biggest company and at just $33.70 per share, makes for a compelling ultra-long-term buying opportunity. Due to its size and strength in many markets, BHP should be a considered a core stock. That is, at the bottom of your portfolio pyramid.
2. Bentham IMF Ltd (ASX: IMF) is a litigation funder which has an impeccable track record of success. Bentham is currently setting the foundations for long-term success, both domestically and abroad, by taking on more cases and forming new partnerships. Although its earnings can be lumpy (since case settlements can come at any time) it has capable management and a strong balance sheet to fund its growth strategy.
3. Slater & Gordon Limited (ASX: SGH) recently reported a solid set of results and its stock price has jumped considerably over the past year. Although not considered a “blue-chip” just yet, the company is well on its way. Particularly if its UK expansion continues on its current trajectory.
4. Shine Corporate Ltd (ASX: SHJ) is Slater & Gordon’s smaller rival. Although taking a Noah’s ark approach to investing (i.e. ‘two of everything’) rarely ends well, I think Shine’s management team are extremely competent and setting the company up for long-term success. It is currently expanding both organically and acquisitively throughout Australia.
5. Cash Converters International Ltd (ASX: CCV) is Australia’s premier second-hand goods dealer which has provided an average annual shareholder return of 20.1% over the past 10 years. However, in 2013 its share price was hit hard when legislative changes made it harder for the company to charge certain fees on small-loans. But I believe shareholders have many things to look forward to, such as its growing Carboodle business as well as its ongoing international expansion.
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Motley Fool Contributor Owen Raszkiewicz owns shares of Bentham IMF, Cash Converters Shine Corporate and Slater & Gordon.
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