Do you know you can double your share portfolio in 10 years with just a 7.2% average annual return and profits reinvested?
But how can I make 7.2% in the share market, isn't it just gambling? I hear you say.
Over the short term it could be considered somewhat akin to gambling; but over the long term, the share market has proven to be the best vehicle for driving your wealth higher.
The Vanguard Australian shares index fund (a fund which tracks the performance of the broader market) has returned 11.7% per annum, over the past 30 years. That turns $10,000 reinvested into over $276,000.
But that was just the average. No doubt, there would be many investors who've managed to do even better than average.
Think of all those shareholders who bought into the $2.45 Woolworths Limited (ASX: WOW) IPO in 1993. Today, at $34 per share, investors would be sitting on huge capital gains but it has also paid out huge amounts in tax-effective dividends along the way. Even the runt of the big four banks, National Australia Bank Ltd (ASX: NAB) has achieved an average annual total shareholder return (TSR) (dividends plus capital gains) of 8.4% over the past 10 years.
However, there's another side to the spectrum we must acknowledge. That is, many more investors would have done worse than average.
3 stocks to double your portfolio in 10 years
Here are three companies I've recently bought because I believe they will achieve a rate of return, greater than the market's average, over the long term.
1. Cash Converters International Ltd (ASX: CCV) is Australia's leader in retailing of second hand goods and a rapidly growing provider of payday loans. The company's stock has achieved an average annual TSR of 20% over the past 10 years. However shares are currently quite cheap, creating a great buying opportunity in an established growth stock.
2. Sky Network Television Ltd (ASX: SKT) has a commanding lead in New Zealand's pay-tv market, with a residential household penetration of around 49%. Despite boasting a very reliable 4.6% dividend, the valuation of shares in Sky TV is not demanding.
3. Shine Corporate Ltd (ASX: SHJ) is only a new addition to the ASX and boasts a dividend yield of just 1.4%. However, Shine is a very well-run business with a strong management team, who will guide the firm through acquisitive growth in the years ahead. Coupled with a payout ratio of just 24% and cash strong balance sheets, long-term investors are likely to be well rewarded for their patience with a steadily growing stream of dividends.
A better growth stock idea is here…
