You Should Stuff Your Portfolio Full of Income Producing Stocks

I’ve only got a brief Money Morning for you today as I’m wrapping up the October issue of Australian Small Cap Investigator.

I’ve got two new buy tips waiting to be released to paid subscribers, so I’m just quickly running through these notes while our design team is laying the report out.

If you’re a subscriber you should look for it in your inbox later this afternoon.

So, while I’ve got a spare 15 minutes or so before I head back to finish up on Australian Small Cap Investigator, something else came back to my mind.

You’ll remember I mentioned the lunch I had last week with three old broking pals.

Naturally, the subject of the stock market came up. One interesting comment was something I had been told earlier this year but had forgotten about.

He mentioned that when the market hit rock bottom last November (until the following March anyway) the expert analysts at his broking firm didn’t have a single buy recommendation on a stock.

That would be fine if they had stopped buying at the top, but they hadn’t.

Yet when the market was trading at four or five year lows, the analysts couldn’t bring themselves to pick out a single bargain in the market.

Which is a shame, because in Australian Small Cap Investigator we picked up several small cap bargains when no-one else was interested.

Anyway, you’re probably wondering, with the stock market continuing to head south whether it’s a good time to buy shares.

As far as I’m concerned that’s fairly easy. As long as you stick to a two prong approach you’ll know your risks upfront and you should therefore be prepared for the best and the worst.

But as always, you’ve got to remember that investing at any time in the stock market isn’t risk free.

The way I continue to look at it is that as an investor in the stock market you should stuff your portfolio full of income producing stocks and then have a smaller exposure to small caps.

To use financial jargon, you should use small caps like you would a leveraged investment.

Everyone knows that small caps rise and fall in bigger movements than blue chips. So rather than buying blue chip growth stocks using a margin loan, where your loss could be bigger than your initial investment, a better approach is to just invest a much smaller amount in a number of small caps.

Of course, you should take that advice with as much or as little salt as you like. Remember that I write a small cap newsletter. But to me it makes sense.

As for the income stocks, again, that’s pretty easy. And it’s a necessary tactic.

In fact, I thought it was such a good strategy that I started a new newsletter just for it – Australian Wealth Gameplan. The idea is that you want your blue chips to produce income. You want them to pay a regular dividend and have the ability to hold the dividend steady if the economy takes a turn for the worse.

The last thing you want is to have to sale shares when the prices are low just to raise cash to live from. A regular dividend income stream means you don’t have to worry so much about day to day price movements.

Right now I’ve tipped ten stocks for Australian Wealth Gameplan. Of course it doesn’t mean you need to own all ten, instead you should just pick a handful of the stocks that you’re most comfortable with.

Both strategies are working so far, and as this market remains uneasy I can’t see that changing anytime soon.

Anyway, I’ll leave it there today as I’ve got to dash.

But I’ll be back tomorrow when I’ll be able to spend a bit more time with you.

Tagged as: australian small cap investigator, Australian Wealth Gameplan, blue chips, dividend, expert analysts, stock market