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3 shares I like for big income and growth prospects

The share market can be perplexing at the best of times. With 2,164 listed companies on offer, even seasoned investors may be forgiven for becoming confused sometimes. Even so, I truly believe that the key tenet to successful long-term investing is building a diversified portfolio and picking up rock-solid stocks at the right price.

Here are three companies which I think investors should consider for their core, growth, and speculative holdings.

The blue-chip stalwart

When investors buy blue-chip stocks, they should look for defensive characteristics to provide comfort that their largest investments won’t go belly-up in the long-run. Whilst Australia has plenty of choice through any of Australia’s big four banks, consumer staple Woolworths Limited (ASX: WOW) and infrastructure behemoth Transurban Group (ASX: TCL), I can’t help but like Telstra Corporation Ltd (ASX: TLS) as the one blue-chip stock every investor should own.

Like fellow candidate CSL Limited (ASX: CSL), Telstra is a defensive stock that should perform well through most economic cycles. With its coveted 6% fully-franked yield on offer at current prices, its dividend places it above CSL in my books.

The growth stock

It’s no secret that today’s blue-chips were yesterday’s growth stocks. Each of Commonwealth Bank of Australia (ASX: CBA), Wesfarmers Limited (ASX: WES) and Woodside Petroleum Limited (ASX: WPL) started off as budding growth stocks that proved themselves through years of performance to become blue-chip stars today.

As a result, investors looking to make S&P/ASX 100 Index (ASX: XTO) beating returns will need to venture past the top 100 stocks and buy up-and-coming companies that have potential to be superstars of tomorrow. This requires looking for companies with a strong growth trajectory and market-beating history.

Whilst stocks like Flight Centre Travel Group Ltd (ASX: FLT), Sirtex Medical Limited (ASX: SRX) and REA Group Limited (ASX: REA) immediately fit the bill with growth potential, my preferred exposure remains Retail Food Group Limited (ASX: RFG).

The pizza-cum-cafe-cum-bakery conglomerate has experienced tremendous year-on-year profit and revenue growth, with its latest acquisition of Hudson Pacific providing it with potential to build an even larger empire in the years to come. Watch this space.

The speculative (ten bagger)

Buying speculative stocks is incredibly risky as the potential for 10-fold gains is equally as likely as the potential for the company to go bust. This means investors dabbling in speculative investments must remember the basic principles of portfolio management — asset allocation.

My preferred ratio is the 60-30-10 rule where investors hold 60% in their core holdings, 30% as growth stocks and only 10% in speculative investments in order to hedge their risk, whilst ensuring they have the opportunity to pick the next 1,000% winner like Bellamy’s Australia Ltd (ASX: BAL).

Although the index is littered with hot stocks like Praemium Ltd (ASX: PPS) and Mobile Embrace Ltd (ASX: MBE), my preferred exposure is Adslot Ltd (ASX: ADJ).

Adslot is a technology stock that demonstrates strong momentum and industry-disrupting characteristics, making it an exciting speculative stock to watch.

Foolish takeaway

Notable exclusions from the above list are the big four banks and resource giants BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO). Whilst that doesn’t mean these stocks don’t deserve a place in a well-diversified portfolio, I believe their current prices and muted growth prospects don’t leave much room for things to go wrong.

Accordingly, whilst savvy investors should allocate some of their portfolio to these core holdings, I believe investors are better off buying Telstra, Retail Food Group and Adslot at current prices.

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Motley Fool contributor Rachit Dudhwala owns shares of Telstra Limited. The Motley Fool Australia owns shares of Retail Food Group Limited. 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.