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7 easy steps to build a defensive stock portfolio

Analyst shares top tips for a 'set and forget' strategy.

Azal Khan

Digital Journalist, Your Money

Editor’s note: This article contains information only. It is not intended as general or personal advice. Your Money recommends seeking professional advice specific to your personal circumstances. 

Are you one of the many Australians who have some cash sitting in savings and aspirations to invest in the stock market but are not sure where to start?

It’s not as difficult as you might think.

Andrew Page from online investment club Strawman showed Your Money Live how to create a defensive portfolio you can “set and forget” for at least five years.

A defensive strategy means investing in businesses that would hold up fairly well if there was a big global economic event.

Despite creating a defensive portfolio, Page cautioned aspiring investors by saying they should lower their expectations for huge growth.

“We are at the end of a good 10 years after the GFC (Global Financial Crisis) so things are looking a bit shakier now.

“It will be a bumpy ride, it always is. But in my view, these businesses will be around in five and ten years time and be bigger and better than today,” Page said.

The key is to start your portfolio off with the “classics”.

Page says an investor could expect a very reliable income from these stocks.

“Transurban and Sydney Airports are offering pretty good yields right now, around five to 5.5 per cent, so you’ve got a bit of an income stream while you wait.”

Cochlear and CSL stand out for their “pedigrees” and shareholder returns, despite being expensive.

“As a bottom drawer set and forget, you always want to go quality over value. I think in this case you will sleep very easy at night.

“These are legitimately world leaders in their chosen industries and they will be bigger and better come 2029.”

Page believes a portfolio should have roughly 15-20 stocks for diversification, just “make sure you don’t have 15 gold miners”.

Geographic diversity is another important consideration when picking stocks, Page says.

“What’s nice about these is they have a lot of offshore exposure, so that means you have a bit of protection if the domestic economy gets into a bit of a wobble.

Even though this sample portfolio is designed to be “set and forget”, Page says shareholders still need to pay attention to the company’s results to make sure the business is performing well.

“Nothing is ever static.”

For first time investors, Page’s advice is to start slow. If you have a few thousand dollars to invest, you don’t need to start with 10 or 15 stocks from the get-go.

“Start with a few core holdings, continue to save then drip some money in the following months and years as well.”

“That has the added effect of giving you the dollar cost average because you are buying at different points of the market. It has the effect of significantly reducing the timing risk in the market.”

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