We have remarked how quickly the appetite for returns and the cost of risk has been replaced by a strong desire for safety, even at the cost of reduced returns. It seems that most asset classes have been impacted and while there are always opportunities for bargains, the rank-and-file, long term investor wants something less volatile.
Anand Chokkavelu, from the Motley Fool goes back to basics and points out seven stocks that can provide stability with reasonable returns. What stability and reasonable returns means has changed substantially over the past two quarters. He goes back to the blue chips that have done well and are likely to continue doing so as they are staples of life for most of the developed and emerging world.
His list:
- Coca-Cola (NYSE: KO) and PepsiCo (NYSE: PEP) -- A virtual beverage duopoly with global brand power.
- Colgate-Palmolive (NYSE: CL) and Procter & Gamble (NYSE: PG) -- their brands cover kitchens, bathrooms and the laundry room.
- Johnson & Johnson (NYSE: JNJ) -- The one-stop "health-care mutual fund".
- McDonald's (NYSE: MCD) -- The Golden Arches is a model of consistency with worldwide presence.
- Wal-Mart (NYSE: WMT) -- The preeminent one-stop-shop discount retailer.
These leaders in the market are impacted by the ups and downs of the equity market but are large enough to not be caught up in full storm of panic buying and selling. In fact, they may even benefit from being perceived as a safe haven. In any case, these companies (which also have dividends to support short term income requirements) are worth considering as a bedrock of a long term portfolio.
We will compare these companies with our benchmark set of dividend ETFs that are well diversified.
The benchmark ETFs are:
| Asset | Fund in this portfolio |
|---|---|
| REAL ESTATE | ICF (iShares Cohen & Steers Realty Majors, |
| CASH | CASH |
| FIXED INCOME | TIP (iShares Barclays TIPS Bond, |
| Emerging Market | VWO (Vanguard Emerging Markets Stock ETF, |
| US EQUITY | DVY (iShares Dow Jones Select Dividend Index, |
| US EQUITY | VIG (Vanguard Dividend Appreciation ETF, |
| INTERNATIONAL EQUITY | IDV (iShares Dow Jones Intl Select Div Idx, |
| High Yield Bond | HYG (iShares iBoxx $ High Yield Corporate Bd, |
| INTERNATIONAL BONDS | EMB (iShares JPMorgan USD Emerg Markets Bond, |
- 7 Dividend Stocks Pumping Payouts As The Summer Ends -- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes,
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes -- funds selected based on price momentum,
| Portfolio/Fund Name | 1Yr AR | 1Yr Sharpe | 3Yr AR | 3Yr Sharpe | 5Yr AR | 5Yr Sharpe |
|---|---|---|---|---|---|---|
| Retirement Income ETFs Tactical Asset Allocation Moderate | 5% | 65% | 10% | 81% | 10% | 68% |
| 7 Stocks That Get You Rich Slowly | 12% | 103% | 5% | 26% | 8% | 44% |
| Retirement Income ETFs Strategic Asset Allocation Moderate | 3% | 43% | 5% | 30% | 3% | 15% |
Full details
With a selection of only seven equities, there will be increased volatility as diversification is limited. There is no access to emerging markets, real estate and commodities. Having said that, these equities perform well.
For those who feel comfortable owning equities rather than buying a whole market, this is a great place to start to build the core of your portfolio.
For now, I'm sticking with the diversified set of ETFs
Disclosure: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
