Many retail or amateur SMSF or mum and dad investors will prefer a set-and-forget approach to investing usually because they’re time poor and don’t have the expertise to research companies and stocks on an ongoing basis.
Fortunately this is something of a happy coincidence because set and forget or “long term” investing is generally the easiest way to create serious wealth for you and your family in the share market.
Another advantage of long-term investing is that you don’t rack up brokerage costs that add up if you attempt to trade in and out of companies too much.
But long-term investing only works if you buy the right companies.
In all honesty the benchmark S&P /ASX200 (ASX: XJO) of Australia’s leading companies isn’t crammed full of high-quality companies suitable for long term investments.
However, there are a few companies that fit into the buy-and-hold forever category.
I’ll name two in the financial services space that I’ve covered a lot before, but not for nothing, and I continue to rate them as decent long-term prospects. Let’s take a look at them.
Magellan Financial Group Ltd (ASX: MFG) is due to report its interim profit result on February 14, but this is a business I’d happily buy today on valuation grounds and in light of recent improvements in its investment and operational performance.
Despite the stock rising around 16% over the past year it’s looking as cheap as it has been in a long time selling for 19x trailing earnings per share that admittedly back out FY 2018’s costs around its Magellan Global Trust capital raising. However, investors should note this earnings multiple is actually cheaper than what it has traded on regularly over the past few years mainly thanks to it delivering 37% adjusted profit growth in FY 2018.
Moreover, FY 2019 is shaping up to be another strong year of profit growth, with it possessing a strong balance sheet and leverage to the falling Aussie dollar the stock is good value in my opinion.
Magellan carries risks via its leverage to global markets and due to the rise of passive investing, while the departure of founder Hamish Douglass for an unexpected reason would be a big blow.
Macquarie Group Ltd (ASX: MQG) is a far more established asset manager and investment bank that offers investors global exposure and upside from a lower Australian dollar. Importantly for investors prepared to set and forget it has a market-thumping long-term track record backed up by its scale, innovation, and moderate competitive advantages thanks to its excellent reputation among clients.
Macquarie is forecasting profit growth of 15% in FY 2019 which is strong given its valuation and like Magellan it also offers excellent dividends.
The success or failure of both these businesses is of course linked to the health of equity markets more widely and as such they’re vulnerable to big falls in line with equity markets.
However, we know over the long term equity markets should rise and I rate these two businesses as good bets for dividends and capital growth.
Magellan being slightly higher up the risk curve as more of a one-trick pony where risk is more concentrated.
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