Top 10 stocks to boost your retirement savings

The volatility of the stock market means that most opt for safe shares.

Marcus Padley

The volatility of the stock market means that most opt for safe shares. But Marcus Padley has a better suggestion...

Let’s assume that you are running a self- managed super fund (SMSF). Whereas a fund manager will invest across a host of asset classes and hundreds of stocks, it turns out that 50 per cent of SMSF equity investment is invested in just 10 stocks – the 10 biggest stocks. With the top 20 stocks accounting for 53.9 per cent of the All Ordinaries index by market capitalization, you can understand why this is the case. And this is the major difference between equity investment in an SMSF and in a professionally managed fund – the number of stocks. The average SMSF that I’ve seen may hold 20 stocks, less than that is seen as too risky and above that is seen as losing the point of stock picking.

So if we had to pick 10 stocks which ones would they be?

Pose this question to a lot of financial professionals and I can tell you what they will recommend – the ‘Predictable Portfolio’, a portfolio of large stocks that anybody could pick without any risk of being sued for the advice. Such is the consequence of the overregulation of the financial advice industry. No one on the advice side comes at the investment conundrum from the point of view of the investor anymore, trying to make you money, they first come at it from a liability point of view, trying to make sure their advice won’t get them into trouble.

Of course this sort of ‘sleep-at-night-forever’ portfolio suits a lot of amateur investors who tend to have a low risk threshold and like to stick with the big stocks that they have heard of, many of which are fairly mature, pay a decent dividend and are unlikely to shock. But the reality is that you really don’t need to pay someone 2 per cent of your super balance per annum to do this for you. It’s not a value add to choose the four banks, Telstra, BHP, RIO, Woolworths, Wesfamers and CSL. You can do better.

Plus these stocks are not guaranteed to perform. Between March 2015 and February 2016 the banks fell 31.4 per cent. BHP and RIO fell hard as well.

Woolworths has pretty much halved. Big stocks have their issues at times and it is not ‘safe’ to just buy them, and it’s worth remembering that, as large stocks, their growth is limited.

The way to improve on the Predictable Portfolio is to pick companies on a slightly more scientific basis, not purely the fact that they are big. The way I would do that is to identify positive long- term business themes that promise some chance of growth and are likely to persist for years, rather than months, and in so doing underwrite the long-term share price performance of the stocks exposed to them.

At the moment those themes would include some of the following:

• An ageing population. The baby boomer population wave is moving into retirement and as it does the demand on retirement, health and aged care services will remain healthy. This incorporates healthcare equipment stocks such as Cochlear, ResMed, as well as healthcare providers including Sonic Healthcare, Ramsay Health Care and Healthscope.

• Income stocks. Infrastructure companies (in particular, airports and toll roads) that do not have competitors or have monopoly style businesses (e.g. banks and utilities). These stocks might include Sydney Airports, Auckland International Airport, Transurban, and utilities such as APA Group, AGL Energy and DUET. These are all low return on equity companies, but are reliable as they have nothing better to do with our money than return it to shareholders.

• Telecommunications. Another industry that isn’t going away is the telecommunications industry, as it is the major conduit for the internet, which has now become vital infrastructure. Telstra dominates, but there are many midcaps in the space, with one of the most obvious being cloud data centre infrastructure company NextDC.

• Disruptors. These are businesses that are exploiting the internet. They will come and go but obvious disruptors include stocks such as Webjet, Realestate.com and Carsales, let alone Dominos Pizza, a modern IT exploiter. Then there are the disruptors like Xero and MYOB.

• Healthy growth. Australia has a strong motor industry when it comes to car sales, especially in the 4WD sector. ARB makes 4WD components here and internationally and so are exposed to the healthy growth in car sales.

• Then there is China as a theme. The resources boom is over but the services boom is yet to explode. Stocks such as Bellamy’s and Blackmore’s have only scratched the surface of what is possible when selling to a population of 1.357 billion people, which is growing at 0.5 per cent pa and has a life expectancy of 75.2 years. At some point other Australian services companies will crack the nut and win the trust of the Chinese with their brand.

Out of all that I have plucked out ten big stocks. Telstra, the Commonwealth Bank, Westpac Bank, Transurban, Sydney Airports, Cochlear, Resmed, Sonic Healthcare, Ramsay Health Care and CSL Limited. And for those of you with a bit more of an appetite for risk, REA Group and smaller stocks NextDC, ARB Corporation, Xero and SG Fleet.

For more on stock picking I invite you to stay up-to-date through my newsletter,?Marcus Today. But if you don’t, don’t sue me!

Marcus Padley is the author of the stock market newsletter Marcus Today and a Director of financial services business MTIS Pty Ltd.For a free trial of his newsletter please go to www.marcustoday.com.au.

Marcus Padley and his Associates may hold securities in the companies mentioned herein. Unless otherwise stated any advice contained in this email is of a general nature only and has been prepared. 





    COMMENTS

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    11th Nov 2016
    10:40am
    After yesterday's "Padley's Paltry Predictions" I wouldn't put too much credibility into this follow-up article. A throw of the dice may be more reliable.
    Old Geezer
    11th Nov 2016
    10:45am
    None are on my buy list at present.
    Anonymous
    11th Nov 2016
    10:45am
    You are correct Fast Eddie perhaps even a dart board with a throw at each stock and then hope like hell.
    Good Luck.
    MICK
    11th Nov 2016
    10:54am
    What Padley is not saying is that shares have already run a long long way since 2010. Some of the growth stocks have increased by 10x 2010 prices. Whilst there may still be growth mums and dads are normally flogged dead horse just before a crash so that they bear the losses whilst the big end of town sits on the sidelines.
    It may be pertinent to ask Padley if he is still OUT of stocks. Last time I looked he was. If so why is he flogging these to retirees?
    I agree with some of Padley's spiel. I have done ok out of Telecommunications and want to buy more retirement linked stocks but these have already moved a fair bit so maybe a wait and see is the way to go. Who knows.
    PAYEdmydues
    11th Nov 2016
    3:49pm
    I've had 6 of the ten in my SMSF for years. Helps to confirm my strategy although down in recent few minutes months. Been reading Padleys column for some time. Commonsense advice.

    11th Nov 2016
    1:15pm
    Didn't expect to hear from a Leftie like you, Mick for weeks yet! Thought you would still be locked up with your therapist following Donald's win in the States! What's a leftie like you doing buying shares anyway? Scratch one of you hard enough, and underneath, you are all dying to join the big end of town!!!
    Anonymous
    11th Nov 2016
    4:19pm
    I think Micks doing allright Big Al only he"s a bit envious of the big end of town and would like to be amongst it.
    Anonymous
    11th Nov 2016
    5:26pm
    fancy saying such nasty things about our labor stooge micky boy!
    particolor
    11th Nov 2016
    2:54pm
    YEAH !! Well I put a Lotto Win as the only Slither of a Chance us Oldies Have :-)
    The pom
    11th Nov 2016
    6:04pm
    Quite a few years ago my wife and I started in a small way building a safe portfolio with some bank shares and other safe investments. Well they are down a bit now but still paying us enough to live comfortably. Anyway, if I wanted to sell them the gains tax would be a nightmare, so they are sitting there paying us enough to live in reasonable comfort with no debt, and a reasonably new house and car

    11th Nov 2016
    6:06pm
    after trump's winning the vote to become the next president of the United States of America I am waiting with abated breath for the comments of our great contributors to these columns no other than p.s and barak, our middle east correspondent, wonder how much they lost on their shares but more how much it has cost them to consult their psychologist and still wonder why the normal human being is having enough of the bulldust thrown up by our politicians and the so called do-gooders they are part of.
    particolor
    11th Nov 2016
    7:05pm
    Those Do Gooders are DANGEROUS !! :-( :-(
    Anonymous
    11th Nov 2016
    7:36pm
    they sure are!
    MICK
    11th Nov 2016
    10:03pm
    Trump won because average Americans who have been losing their jobs for years registered a protest vote against the establishment. You would understand that if you were not a brain dead troll. People rebel against oppression eventually and your master Malcolm can keep taking away Australians jobs at his peril.
    It will be good to see this country spit out this government like Americans did to theirs. Coming. Then you will be out of a job. How sad. You deserve it.
    Blossom
    11th Nov 2016
    7:14pm
    Telstra shares go up and down. A lot of people have gained very little income from Telstra Shares which at one stage dropped a lot in value.
    Perhaps we could be given the full names of some of companies above.
    particolor
    11th Nov 2016
    7:44pm
    I'm dumping them at Christmas And giving Myself a Substantial Pay Rise !! Their Rates are Ridiculous !! :-( :-(
    KSS
    11th Nov 2016
    8:06pm
    Ummm ALL shares go up AND down. Its the nature of the beast. Its only a loss or profit if you sell, otherwise its all on paper only. Look at what happened in a 24 hour period this week. Huge drop then almost immediately a massive rise. Pundits all looked a bit stupid with their doom and gloom predictions disproved within a few hours.
    MICK
    11th Nov 2016
    10:06pm
    It's in the timing, the management, the industry and luck also plays a part. Never a matter of simply going up and going down.
    Telstra? A good company in the past but once its copper is dead it will lose its monopoly. There are a lot of smaller players coming up which may send Telstra out of business. Whilst I like the dividend return I am not sure about the future of the company. Good luck with that one.
    Peanuts
    11th Nov 2016
    11:29pm
    I would check out ETFs. Problem is not enough commission for financial advisors.
    Strummer
    12th Nov 2016
    9:00am
    I tend to stick to companies that give a good yield and are in industries I understand and use myself. I only look for value in the ASX top 100, I only deal in the Australian market and I diversify. My gain since inception (1985) is 340.9%. Return: 124.85%. Annualised: 8.7%, YTD -10.36% (sob). Never buy and never sell on a whim. Keep meticulous records (there's good free software out there). Never slavishly follow the advice of others but never ignore it either and don't panic when the market falls.


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