2 types of stock portfolios primed to beat the market: experts

We learned earlier this week which portfolios to avoid. Now let's take a look at the ones that have the best chance of succeeding.

Two boys with cardboard rockets strapped to their backs, indicating two ASX companies with rocketing share prices

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Earlier this week The Motley Fool reported on the ASX share portfolios that should ring alarm bells

This time let's take a look at the opposite — portfolios that are ready to beat the market.

Of course, success is not confined to just these models. But the team at Marcus Today reckon these two styles have a great chance of beating the market:

Portfolio to invest for income

We already heard how useless it is to have a portfolio stuffed solely with large cap ASX shares.

Not only does such a batch have a poor chance of beating the market, it encourages laziness. The investor may not keep track of what's happening with those businesses, armed with a false sense of security from the big names.

"It may seem normal and sensible, but the truth is that if you're going to do this 'moron portfolio' thing, you'd be better saving yourself from a lot of admin, activity and lost evenings and weekends by just buying market ETFs," read the Marcus Today blog post.

But converse to that is owning a "big 20" income portfolio.

"Unlike holding a portfolio of twenty big stocks just because they're big, picking 20 stocks for yield is a sensible use of your time."

Constructing such a stable requires some intelligent research to pick ASX shares that are high yielding but have relatively low volatility.

Not all income stocks are born the same, the Marcus Today analysts warned.

"Banks are income stocks. They are boring, safe, have high payout ratios and few ambitions. They understand the importance of their dividends to shareholders and will pay them come high water," the blog read.

"Resources, on the other hand, are cyclical. They offer high yields in the good times but as we found out from Rio Tinto Limited (ASX: RIO) at the last results, not all the time."

Portfolio to invest for growth

The other model the Marcus Today team favours is owning a portfolio of just five to ten ASX shares and looking after them really well.

"This is probably the most 'fun' and intellectual, yet least guesswork way to make money out of stocks," read the blog.

"The trick is to keep the list short so you know the stocks. Five would be a good number."

The idea here is that owning five companies that you really know well and closely follow is infinitely better than a portfolio of 20 businesses that you have little idea about.

The stocks are bought with a long-term horizon, then "maybe three or four times" a year the investor would review the portfolio to sell and buy other ones.

"You know them well, get to understand how they trade, what they do, when to buy them and when to sell them."

This concentrated portfolio is the opposite of another "red flag" the Marcus Today team raised: stock picking anything and everything.

"Trading everything and anything — it involves tips and it invites a lot of volatility, risk and reward," stated the blog.

"It is for people who don't have a heart condition. This is riding the stormy seas."

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

a mature aged couple dance together in their kitchen while they are preparing food in a joyful scene as the Breville share price rises on the back of a 25% profit surge
Dividend Investing

These cheap ASX dividend stocks could rise 25% to 40%

Analysts think these stock could generate big returns for income investors.

Read more »

Man smiling at a laptop because of a rising share price.
Cheap Shares

Why this fund manager bought this ASX 300 share for bigger returns

A fund manager thinks good things can happen with this rising ASX share.

Read more »

Two people having a meeting using a laptop and tablet to discuss Seven West Media's balance sheet
Blue Chip Shares

3 fantastic ASX shares to buy for an SMSF

Let's see why these shares that brokers rate as buys could be top picks for super investors.

Read more »

A smiling businessman in the city looks at his phone and punches the air in celebration of good news.
Growth Shares

High-conviction ASX 200 shares with 10-year upside

Let's see why analysts think these shares could be great long term picks.

Read more »

A woman wearing glasses and a black top smiles broadly as she stares at a money yarn full of coins representing the rising JB Hi-Fi share price and rising dividends over the past five years
Dividend Investing

I'd buy 15,346 shares of this ASX 300 stock to aim for $150 a month of passive income

This business is a top contender for investment cash flow…

Read more »

A woman in a bright yellow jumper looks happily at her yellow piggy bank.
Dividend Investing

Forget CBA and buy these ASX dividend shares

Analysts think these picks would be better than the banking giant.

Read more »

A man smiles as he holds bank notes in front of a laptop.
Dividend Investing

Here's the Macquarie dividend forecast from top analysts through to 2027

This business has a promising dividend outlook. Let’s take a look…

Read more »

Three male athletes sprint on an athletics track with the sun low on the horizon behind them representing the race between ASX lithium shares to outperform
Cheap Shares

The pros and cons of buying Accent shares after its decline

There are plenty of positives to consider about this stock.

Read more »