LONDON -- Is it possible to build a portfolio today -- when you have years or even decades to go before retiring -- and then just set it aside without constant fretting and regular tinkering?
Absolutely. And when I sat down to write this article, I had my fellow set-it-and-forget-it investors in mind.
Think of it as "The Busy Investor's Portfolio" -- a basket of some of the best long-term investments to rely on (and not worry about) to help fund your golden years.
Let's take a look at some criteria for a solid, long-term investment, as well as the seven companies that appeal to me right now.
Your pension's not enough
We're at a pivotal point here in the U.K. The warnings about impending pension shortages should be enough to snap us back to reality. That's because we're going to have to work longer and save harder to maintain a reasonable income in our later years.
This is where the stock market can be your greatest resource. With time on your side -- and the ability to leave your emotions at the door -- you can put the market to work for you.
If you want to build a portfolio that will grow steadily over the years -- and demand little of your time doing so -- then I recommend you look for a few important points.
A busy investor's path to freedom
Finding great companies to buy for the long haul doesn't have to be difficult. Here's what I like to see:
1. Size and stability
Bigger companies may lack their smaller counterparts' growth potential, but they do offer greater security, and their shares prices tend to move less dramatically. We also want a track record of solid performance.
Talk about stable: Johnson & Johnson (NYSE: JNJ ) has a 118-year history operating a diverse group of health-care-related businesses. This blue chip is a powerhouse in the U.S. medical, pharma, and consumer products sectors, and it pays a reliable dividend.
A company this size should have enough established brands and financial resources -- strengths less likely to be found at smaller firms -- to offset any missteps from new boss Alex Gorsky, but I have confidence the new exec will deliver for shareholders.
For exposure to the health-care sector on this side of the Atlantic, pharmaceutical giant GlaxoSmithKline (NYSE: GSK ) gets my vote. I'm drawn to the strong underlying business fundamentals of this well-known firm, and I'd dub it a great "foundational" share for just about any portfolio. Glaxo also boasts an above-average dividend yield to sweeten the pot.
While many investors look for fast growers, set-and-forget investors want to see consistent gains in revenue, free cash flow, and other key measures. Slow growth won't make headlines, but it will help prevent the kind of ugly surprises that can torpedo a share price.
Another industry leader I like for the Busy Investor Portfolio is Unilever (NYSE: UL ) . This consumer goods company throws off consistently strong cash flow (and a growing dividend) from its core business here in the U.K., and I only see that improving as it strengthens its hold in emerging markets.
3. Competitive advantage, a.k.a. "the moat"
How well can a company fend off its competitors? The durability of a company's competitive advantages determines its long-term profitability and performance. The more moat, the merrier.
Tanqueray gin, Captain Morgan rum, and Guinness stout are just a few of the powerhouse brands in Diageo's cabinet. In fact, the drinks group owns nearly 20% of the world's top 100 alcoholic brands, which it sells in more than 180 countries. It has secured itself at the top of the industry and is using its massive marketing budget to make sure it stays there.
With Coca-Cola (NYSE: KO ) , the Busy Investor Portfolio is investing in the world's most valuable brand (and more than 500 sub-brands). The strong brand-driven cash flow spills over into earnings and dividends. Maybe that's why Coke caught the eye of U.S. investment legend Warren Buffett, who owns 8.8% (200 million shares) of the company. With truly massive global distribution, Coke has a brand-driven moat that's hard to beat.
Perhaps most importantly -- and why all seven of the Busy Investor share ideas tick this box -- you want shares that pay you back through dividends. Look for companies that can provide healthy payouts now and consistent dividend growth over time (without jeopardizing the company's financial health).
My first pick for dividend payers is Tesco (OTC: TSCDY), which has made headlines here in the U.K. for all the wrong reasons. What you don't see in the news, though, is anything touting the firm's 28-year history of dividend increases. With a healthy balance sheet backed by a strong asset portfolio (think land and stores), Tesco should be able to reduce its capital expenditure (buildings, equipment, and so on) and increase cash flow. And that's all good news for shareholders.
Astute readers will point out that this last share idea runs a bit counter to the "size and stability" argument. But I like City of London Investment, a 100 million pound fund manager, for its asset-light business model, which produces lots of cash flow. I consider its 6.4% dividend appealing -- and safe -- for fellow Busy Investors.
Market timers need not apply
So there you have it: The seven stocks I'll retire on, assembled neatly into my Busy Investor Portfolio. As I'm a regular saver and investor, I am building my portfolio over time ("that is, not lump sum").
You'll notice I didn't spend any time talking about the price of these seven investments. Not because it doesn't matter -- you don't want to pay too much for a share, after all -- but because it matters less and less over time -- and this is a long-term venture, after all.
Now that you're set, you can forget
Let's not kid ourselves: Investing in shares does take some time
But sparing a few minutes a month now and then to set yourself on the path to a good retirement is a no-brainer -- especially in the face of shrinking pensions, rising inflation, and the fact that you and I aren't getting any younger!
Let me finish by adding that, for help building your own winning portfolio, I recommend you read "What Every New Investor Needs To Know" -- a free Motley Fool report to help you get started with shares.
Happy set-it-and-forget-it investing, and good luck!
Oils, pharmaceuticals, banks, telecoms -- just where should you invest today? "Top Sectors for 2012" is The Motley Fool's latest guide to help Britain invest. Better. The report is free.
Further investment opportunities:
- 10 Steps To Making A Million From Shares
- Novice Investors Should Read This
- Investment Greats: Neil Woodford