Can regular investors really make money in stocks?
A lot of new investors may think that it's only the business school graduates with finance degrees who can only make big money through shares. They may be better equipped to land a job with a financial services company or fund manager, yet they have no great advantage over you and me in stock picking.
Performance over a number of years doesn't lie. Putting actively managed funds up against the S&P/ASX 200 Index (ASX: XJO) (Index: ^XJO) and its accumulation index, the majority of those fund managers underperformed the index over the past 1, 3, and 5-year periods.
Feeling any better now?
Now, Foolish investors don't want to just match the averages, but smash them. Still, you need a plan that can realistically double your portfolio in six years, like a regular business cycle.
Doubling sounds difficult, but it's the steady growth and power of compounding that does the heavy lifting. To double your value in as little as six years, you only need an annual increase of 12%.
Banks pay almost next to nothing for holding your money and bonds may only cover the rise of inflation yet give no real gain.
Is it hard to get a 12% return on stocks?
The way to do it is a mix of dividend returns and share price gains. If the sum of the two are 12% or greater, you hit the target.
Solid dividend stocks may pay upwards of 4% or 5%, even 6%, so you just need a company that can grow earnings annually at least 6% – 7% to succeed.
I would be looking at stocks like Macquarie Group Ltd (ASX: MQG), the investment bank, which pays a 4.9% dividend yield and is forecast to raise earnings in the high single-digits for the next several years. I like the bank because a great part of its business comes from overseas markets, where it can tap into the growth of international investing.
Another would be Suncorp Group Ltd (ASX: SUN), the general insurer and bank. It has seen great improvement in its banking and is getting a boost from the rising housing market in residential loans. The big 6.1% fully franked yield is an eye catcher – already half of the target 12%. From its business simplification program, expected cost savings should increase earnings dramatically over the next two years. On top of that, special dividends may be in the picture, so total dividends can rise as well. I think Suncorp can surprise to the upside over the coming years, so having it in your portfolio should help you towards your goal of doubling your stock portfolio.
Now, these two are not the only ones that can help you hit the six-year target, nor are they the best to stuff your portfolio with. There is one more company that needs to be mentioned.
