It's important that investors remain grounded and realistic in their expectations for the returns their portfolio will produce. Generally the longer someone has been investing, the more they come to realise what is and isn't realistically achievable. In contrast, investors new to the share market are more likely to have an over-hyped sense of achievable returns – they'll 'swing for the fences' and in the process risk 'striking out'.
In reality, even if an investor achieves only a relatively modest mid-single digit return, compounded over a long time frame, they can still set themselves up for a comfortable retirement…
In fact, to double your money within 10 years only requires you to achieve a compound return of 7.2% per annum.
Given the S&P/ASX 300 Accumulation Index has achieved an annualised return of approximately 9% over the past decade, an investor could actually have done worse than the market average and still have doubled their money!
With the above return parameters in mind, here are three stocks which have the potential to help investors achieve a portfolio return of at least 7.2% per annum (pa) over the coming 10 years.
As one of the two main consolidators of insurance brokers, Austbrokers Holdings Limited (ASX: AUB) has provided shareholders with a Total Shareholder Return (TSR) of 18.2% pa over the past five years. With plenty of scope for further industry rationalisation and consolidation over the coming decade there appears a decent chance that a TSR of 7.2% pa or more going forward can be achieved by the group.
One of the benefits of taking a decade long approach to investing is that it allows you to look through the short-term noise and focus on the long-term earnings potential of a company. That's certainly a pre-requisite for entertaining the possibility of investing in diversified operating and investment company Seven Group Holdings Ltd (ASX: SVW).
While Seven's TSR performance over the last decade is a disappointing 2.5% pa, considering the stage of the economic cycle the group is exposed to, the future TSR could be much stronger. Indeed according to analyst consensus data from Morningstar, Seven's earnings should bottom in FY 2015 before rebounding strongly in FY 2016.
Up-and-coming telco iiNet Limited (ASX: IIN) has achieved a TSR of 13.3% pa for the last 10 years. The company is currently forecast to grow earnings per share from 40.4 cents per share (cps) in FY 2014 to 54.3 cps in FY 2016; with a growth rate like this and a share price that doesn't appear excessive, it's quite possible a TSR of 7.2% pa over the next decade can be attained.
