If you're new to stock market investing, maintaining a well-rounded portfolio is essential.
Remember it isn't a sprint but a marathon and thanks to compounding returns you need only achieve a 7.2% pa return, for 10 years, to double a stock portfolio.
Related > Free guide — Your 10 Step Guide to Making $1 Million in the Market
Holding a mixture of small, medium and large-cap stocks is a sure way to expose your portfolio to growth without taking on too much risk.
Think of your portfolio as a pyramid, with the biggest and most profitable blue-chips at the bottom, leaving the higher-risk companies at the top. As promising as they may be, it's important that the amount of high-risk investments are kept to a minimum.
Here are five companies I'd gladly recommend to new market entrants.
1. BHP Billiton Limited (ASX: BHP). With the S&P/ASX200 Index (INDEXASX: XJO) rallying higher, share prices in many blue-chip stocks have increased dramatically. However BHP Billiton has remained in an attractive price range and presents a solid long-term buying opportunity. Due to its size and strength in many markets, BHP should be a considered a core stock at the bottom of your portfolio pyramid.
2. Slater & Gordon Limited (ASX: SGH) recently reported a solid set of results and its stock price has jumped considerably. Although not considered a blue-chip yet, the company is well on its way. Particularly if its UK expansion continues on its current trajectory.
3. Shine Corporate Ltd (ASX: SHJ) is Slater & Gordon's smaller rival. Although taking a Noah's Ark approach to investing (i.e. 'two of everything') rarely ends well, I think Shine is a company setting itself up for long-term success. It is currently expanding both organically and acquisitively throughout Australia.
4. Bentham IMF Ltd (ASX: IMF) is a litigation funder with has an impressive track record of success. Like the two aforementioned companies, Bentham IMF is setting the foundations for long-term success both domestically and internationally. Although its earnings can be lumpy (since case settlements can come at any time) it has capable management and a strong balance sheet to fund its growth strategy.
5. Hills Ltd (ASX: HIL) has a rich history in Australia, supplying its one-of-a-kind Hills Hoist clothes lines to households throughout the world. However, Hills has recently transformed itself into a technology and communications business. This year the company is expected to post healthy profit margins and pay out a strong fully franked dividend.
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