2 shares to buy and 2 to avoid for SMSF investors

Are these 4 of the best shares for your superfund?

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For self managed super fund (SMSF) investors who are in retirement, capital preservation should always be a key part of their investing strategy.

While investors in their 30’s, 40’s and 50’s can afford to make the occasional bad investment choice (don’t we all?) and have the luxury of time to recoup their losses, many SMSF investors and retirees simply don’t have that luxury and this can have a dramatic impact on their quality of life.

Putting all of your money in term deposits seems like the easiest way of preserving your capital, but you are also guaranteeing a near zero return when you take into account inflation, taxes and record low interest rates.

Many SMSF investors and retirees will simply need more income to enjoy their retirement and one of the first places they will look is the equity markets. In fact, a recent report from SMSF platform provider Multiport, suggests that SMSF investors allocate more than 35% of their assets to Australian shares – the biggest allocation of any asset class.

Unfortunately for many SMSF investors, the traditional blue-chip shares struggled to generate decent returns over the past 12-18 months, and this has seen some investors move to the sidelines.

Many of the top 20 stocks may continue to struggle over the next 12 months or so, but I still think there are great opportunities in the sharemarket for SMSF investors looking for reliable and consistent capital growth and dividends.

With that in mind here are two shares to avoid and two you could consider adding to your portfolio:

Avoid:

Fortescue Metals Group Limited (ASX: FMG)

The recent bounce in the iron ore price has given Fortescue a temporary reprieve with the share price gaining more than 67% from its year-to-date low. Despite its recent performance, SMSF investors are best to avoid this miner as the recent strength in the iron ore price is unlikely to be sustained over the long term. Fortescue is one of the most highly geared players in the sector with more than $6.1 billion in net debt, so any deterioration in the iron ore price is likely to see the shares come under significant selling pressure. Add to this an inconsistent dividend payout and investors are best to leave this stock for traders.

Mesoblast limited (ASX: MSB)

The sheer volatility of this biotech company should be a big enough reason for most SMSF investors to avoid it. Mesoblast’s share price has gained more than 125% over the past two weeks alone, yet is still down by more than 72% from its all time high. The story surrounding stem cell therapy is certainly exciting and the company is making progress with its treatments, but investors need to understand that the company is far from profitable and not suitable for any risk averse investor.

Buy:

Macquarie Group Ltd (ASX: MQG)

While many SMSF investors tend to stick with the big four banks for security, I think Macquarie offers a much more attractive growth profile for such a large financial institution. Macquarie successfully transformed itself following the GFC and is now reaping the rewards of its new structure. The company has focused on growing its annuity style earnings that can provide reliable earnings in the future. Macquarie’s exposure to global markets is also attractive and will provide opportunities to grow through acquisition and expansion into new markets. Earnings momentum is positive and the recent pull-back in the share price creates an attractive entry point. Income-hungry investors will also benefit from a growing dividend that is currently yielding around 5.5%.

Westfield Corp Ltd (ASX: WFD)

Westfield may not be the fastest growing company on the ASX, but it does provide investors with a defensive source of income and reduced level of volatility. In fact, Westfield shares tend to outperform the broader markets in times of volatility and it is one of a few blue-chip stocks in positive territory for the year to date. Westfield enjoys a generally high level of tenant support as many of its centres are located in premium locations in the US and UK. The company has also recently begun work on its USD$10.5 billion development pipeline that should provide significant earnings growth in the medium term. Investors can expect a dividend yield of around 3.4% over the next 12 months.

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*Returns as of January 12th 2022

Motley Fool contributor Christopher Georges owns shares of Macquarie Group. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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