You don't have to be a Doomsday prepper to know being ready for a rainy day is good practice. Even when you think you have a handful of hot stocks in your portfolio, the market could have other plans.
A market can swing irrationally to the upside just as easily as it can crash to the downside. If you think you can time markets and win, just remember the old investing saying:
The market can stay irrational longer than you can stay solvent
A diversified portfolio gives you some protection against wild ups and downs. Here are some quick rules to help guide your stock picking:
1) Select stocks in different industries so you don't get slammed by multiple share price drops when one industry bottoms out.
2) Mix up growth and dividend stocks so you can get steady income when the market sells off.
3) Have defensive stocks that perform well even when the economy and market are down.
To get you started, here are four stocks that could work in a diversified portfolio. See how they might work with the stocks you already have.
— REA Group Limited (ASX: REA) has grown earnings over 30% on average every year since 2005. As the market leader in property search websites, it has a solid customer following. A majority of real estate agencies use realestate.com.au as their de facto service for listing properties, so business is locked in firmly. Even if it slowed down its growth rate a little, it would still be a fast grower.
— Westpac Banking Corp (ASX: WBC) has one of the better long-term track records among the big four banks for growing dividends. In the past 10 years, it has grown dividends a compound average 6.9% annually. The stock yields a juicy 5.6% fully franked. If it can continue that trend, it could be an attractive dividend income earner for you.
— Super Retail Group Ltd (ASX: SUL) may not seem to be a likely dividend stock at first glance. The specialty retailer, which operates stores like Supercheap Auto, BCF, Rebel Sports and Amart Sports, has been affected by the mining pullback and weak consumer sentiment. The share price has come down over the past year. As for its dividend, whether earnings are up or down, Super Retail has increased its dividend every year for the past 10 years. That indicates dividends and shareholder return are important to the company. It pays a 4.7% yield fully franked.
— CSL Limited (ASX: CSL), the biggest biopharmaceutical on the ASX, could be a great defensive stock. Healthcare services are always in demand due to the number of sick and injured people who need treatment every day. CSL makes blood related products like plasma and albumin used to stabilise patients in surgery or treat burn victims, for example. The healthcare product manufacturer is also a major global influenza vaccine producer. CSL has a steady growth track record when the market is up or down, so it can help keep your portfolio in balance.
