3 companies I’m buying for my new son

Even though people bang on about the importance of compounding returns all the time, it’s hard to truly appreciate their power until you start to see the impact on your own money.

Our psychology just isn’t programmed to care about things 10 years into the future. This of course makes it hard to visualise the idea that $10,000 invested today into a company growing steadily at 6% each year, plus a 4% dividend, will be worth over 2.5 times that amount in 10 years.

But once you embrace this power, you’ll probably wish you had started earlier.

I’m keen to give my own son the full advantage of time and start him off with a basket of companies with strong competitive positions which will grow for years (maybe decades) to come. Here are three companies, I’ll be adding to his portfolio:


Even if cloud accounting company Xero does not look like a conventional bargain today, I like the idea of adding the company to a dedicated long-term portfolio.

In a lot of ways Xero still breaks a lot of rules of conventional investing. But the company continues to deliver incredible growth with its top-notch, user-centric product, strong margins and enviable ability to raise prices. I think these factors will continue to drive long-term success.

2. CSL Limited (ASX: CSL)

CSL Limited will be the second addition to the portfolio. The company is far more mature than Xero, but CSL’s indispensable products, investment in research and strong returns on equity give me firm belief the company can weather the economic storms to come. Although not cheap, I think CSL’s current price of 26x trailing earnings is fair for a quality company which continues to add long-term value.

3. SKYCITY Entertainment Group Limited-Ord (ASX: SKC)

On the other end of the spectrum to Xero will be the addition of SKYCITY Entertainment Group, a company much like a regulated utility with strong, regular cash flows and an appealing dividend.

The casino and entertainment company will provide a moderate income from its 3.6% dividend and act as a valuable discussion point down the track about the difference between gambling and investing!

If you don't like the idea of companies that support gambling, then be sure to check out this top dividend share instead. A strong yield and potential share price gains make this a great investment idea in my opinion.

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Motley Fool contributor Regan Pearson owns shares of Sky City Entertainment Group Ltd. and Xero. The Motley Fool Australia owns shares of Xero. 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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