Which three stocks would I buy today, starting out as a new investor?
There’s a common rule of thumb that an investor needs between 10 and 15 stocks in their portfolio to get sufficient diversification. But who can buy that many all at once? So, my first purchase would be an investment trust, and I currently hold City of London Investment Trust (LSE: CTY).
City of London holds a wide range of UK shares, including some top FTSE 100 ones. It counts British American Tobacco, Diageo, Unilever, BAE Systems and HSBC among its top 10 holdings. So, as a new investor, I might only be buying shares in one company. But I’d get healthy diversification from it. On top of that, City of London has raised its dividend for 54 years in a row, so there’s a nice income stream too.
There’s always a risk that a managed investment company can go bad — just ask anyone who invested with Neil Woodford. But I think a top investment trust would always be my first pick for a new portfolio.
Income beats growth, for me
Some new investors enjoy watching their share prices grow. I get a bigger thrill seeing dividend income building up in my portfolio. Share prices are one thing, but dividends are actual cash. National Grid (LSE: NG) is one of my long-term favourite dividend shares which I’ve never got round to buying — I tend to find different dividends to go for every time.
Only last week, I logged in to check my portfolio, and my latest dividend payment meant I had enough cash for a new purchase. So I bought some Greencore shares, and it felt like I was getting them for free. I then worked out that my average portfolio dividend yield is lower than the 5.2% forecast for National Grid. It made me wonder how much better off I might be had I bought National Grid shares as a new investor all those years ago.
I’ve always liked finance sector stocks, having bought a number over the years. Right now I hold Lloyds and Aviva, and neither has done well for me recently. Starting again as a new investor, I’d still want either a bank or an insurer. And if it was to be one of my first three stocks, I’m pretty sure I’d go for Prudential (LSE: PRU).
Best for a new investor?
Prundential doesn’t pay one of the biggest dividends. But it’s been one of the best managed companies in the sector, in my view. And while the whole financial sector has been through a bad patch, Prudential shares have still managed a 36% gain over the past five years. The two I hold have done significantly less well than that.
I think we’re likely to face tough economic conditions for a while yet. And when business isn’t doing so well, the financial sector tends to suffer. But I do think Prudential is one of the very best, and I’m optimistic for the long term.
There are plenty of alternatives I might have chosen as my first stocks as a new investor. But I’d be happy with these three.
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Alan Oscroft owns shares of Aviva, City of London Inv Trust, Greencore, and Lloyds Banking Group. The Motley Fool UK has recommended British American Tobacco, Diageo, Greencore, HSBC Holdings, Lloyds Banking Group, National Grid, Prudential, and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2021