Building up your portfolio over time is not as hard as it seems, it's just a matter of finding the right stocks to invest in and knowing what is a good price to pay. Here are five stocks for a balanced portfolio that provide growth, income and safety.
Core
Core stocks should make up the majority of your portfolio and are designed to return regular income payments and modest growth. Recently we've seen how a rapid run-up in core stock prices quickly u-turned into massive losses for many shareholders in large blue-chip stocks in the S&P/ASX 20 (ASX: XTL). However, as long as investors pay the right price, an investment in a top blue chip can be very rewarding in the long term.
Core stocks that offer stable long term growth and income are exemplified by Telstra (ASX: TLS) and ANZ (ASX: ANZ). Both are modestly priced and pay great yields of 5.7% and 5.0% respectively, with franking credits on top.
Income
Generally, companies that have more modest growth trends pay higher dividends. Metcash (ASX: MTS) pays a dividend, when fully franked, over 10%. That takes you most of the way to beating the average yearly return of S&P/ASX 200 (ASX: XJO) (Index: ^AXJO). It has a strong and diversified business that allows it to compete with some of Australia's biggest companies, including Coles and Woolworths.
Growth
A common misconception in the stock market is to assume that smaller caps are not as safe as their larger counterparts. If a company has strong balance sheets, good management and a booming industry, it limits the certain amount of risk associated with a smaller business. Since RAMS was bought by Westpac in 2008, Mortgage Choice (ASX: MOC) has increased its market share and share price by some 200% (not including dividends). With property set to rise and interest rates dropping quicker than wickets in an Australian test match, the share price could well trend higher in the short to medium term. At current prices, it pays a 5.5% dividend yield and is moderately priced at a P/E of 15.
Speculative/high risk
Australia's medical exports, in the form of knowledge and products, are sought after the world round. As such, investors now are quick to jump on the next big thing, just as they did 5 or 10 years ago in the mining industry. However, with Allied Healthcare Group (ASX: AHZ), Mr Market may have finally gotten something right. It is a diversified healthcare company that develops the next generation of medical devices, including cardiovascular and soft tissue engineering technology. It has increased some 157% in the past year and remains extremely liquid for its size.
Foolish takeaway
Diversifying your portfolio is paramount to successful investment in volatile markets. This includes investing part of your wealth across different asset groups and within those assets, it's important to diversify again. However any investment is never 100% guaranteed and the best way to keep the odds in your favour is to carefully research on companies you're investing in and be prepared for times when it underperforms.
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Motley Fool contributor Owen Raszkiewicz owns shares in ANZ, Metcash, Mortgage Choice and Allied Healthcare.
