How do you create a long-term portfolio that gives good share price growth and reliable passive income?
First of all, you need some guidelines when you are considering new stocks.
1) Avoid bloated portfolios
Sometimes investors keep adding and adding new stocks left and right, only to wind up with a number of stocks too big to manage. Portfolio returns could even suffer if the poor performers equal out or exceed the gains of the good ones.
If you have 30 stock ideas that you think have merit, you should go with the top five rather than buy a smidgen of each of the 30.
2) Get rid of the "runt of the litter"
Another useful guideline to control portfolio bloat is after you have a base group of, let's say five, you can't add a new one without selling one of the stocks you hold.
So the new stock has to have, in your mind, better prospects than one you already have. That will give you more in discipline portfolio creation and potentially weed out stocks that could pull down your overall returns.
Now, what top stocks are there to help build a rewarding portfolio?
Ramsay Health Care Limited (ASX: RHC) could be a good defensive stock that can perform well even when the economy is flat. The company operates the largest network of private hospitals in Australia and is expanding into promising overseas markets like France, the UK and recently even in China. In five years there will still be a lot of sick and injured people needing medical assistance, so Ramsay Health Care should have a steady, growing business.
REA Group Limited (ASX: REA), the owner of Australia's leading property search website realestate.com.au, has been growing earnings at a double-digit rate for the past four years. The company gets revenue from advertising properties and other real estate related services and is the predominant listing site for many real estate agencies. REA Group is entering the huge US market in partnership with its main shareholder, Rupert Murdoch's News Corp (NASDAQ: NWS). The two companies recently purchased the number three US property advertising company Move, Inc. The growth potential is huge if the joint venture is successful.
