Five investments to start your portfolio

I came across an excellent article recently in Australia’s Sydney Morning Herald – Five simple trades to get you started with share investment – and found myself lamenting that such clear, wise guidance isn’t commonly seen in the UK press.

The best time to start investing is always today.  Especially when the stock market (sorry, share market, in Australia) is offering lower prices than for many years previously.

The specific suggestions for Australians aren’t quite going to work for most Brits, Americans or continental Europeans however.  Here are my tweaks for those of us in the northern hemisphere:

1. 20% in a diversified home market ETF.  The Australian suggestion, VAS, is a Vanguard ETF covering the Australian top 300 stocks.  My ETF page lists some of the obvious UK/US/European equivalents.  US readers would typically pick SPY, a leading ETF covering S&P500.  UK readers could use the Vanguard FTSE UK All-Share Index Trust, or if you insist on ETFs then you could either go for VUKE or ISF if you’re happy with FTSE-100, or SPDR’s FTAL for the full FTSE-350 if you are happy paying 0.20% rather than 0.07-0.08%. For a European flavour, HSBC’s HMEU ETF is a contender.
2. 30% in a diversified international ETF.  Ideally you want an ETF that’s traded in your home stock exchange, which rules out the Australian suggestion (another Vanguard ETF, this time tracking the MSCI International Index).  In the UK or Europe, Vanguard’s VWRL offers all-world exposure pretty cheaply; it includes the UK but not enough to mess with your weightings.  In the US, where you’d probably want an ETF that excludes the US, a good choice is Vanguard’s VEU ETF which tracks the FTSE All-World Ex-US index and costs only 0.14%.
3. 20% in [Wesfarmers].  Most Brits/Europeans/Americans have probably not heard of Wesfarmer (unless they have been following the Home Retail Group takeover action).  This is a blue chip retail conglomerate in Australia.  Looked at laterally, it is an OK business that owns a diversified collection of very well known local mass market brands.  I think your obvious equivalents in UK/Europe include Unilever (ULVR) which has grown its dividends for 36 years, or perhaps Inditex (parent of Zara) or Kingfisher (owner of B&Q and Darty). In the US, you might consider Target (TGT) or Procter & Gamble (PG), both dividend payers with impressive pedigrees.
4. 20% in [Telstra].  Telstra’s is Australia’s incumbent monopoly retail telecoms provider. It’s a reminder of what BT, Deutsche Telekom, France Telecom etc used to be, but without the margin-sapping Brussels-driven pro-competition agenda that the Europeans have faced.  What’s the equivalent overseas?  In the US, which also lacks Brussels to snap at its telcos’ heels and consequently retains prices roughly double what we see in the UK, AT&T (T) has a lot of similarities to Telstra.  Verizon (VZ) is arguably a better business.   In Europe you could go for your local telco champion (BT, DT, etc), or you could choose Vodafone (VOD), or a UK utility supplier (SSE for instance).  Part of the point here is to choose something unrelated to whatever (retail) business you picked in 3 above.
5. 10% in something you choose yourself.  The ‘blue chip’ list in Australia has roughly 20 companies in it.  In the UK it has 100.  Adding DAX, CAC etc you have hundreds.  Or you could go small cap.  In the US the blue chip list is 500 strong and the choice is richer and more varied than anywhere else.  The Australian author suggests picking a business you know and use as a consumer, which is good advice; as a customer you’ll be aware of a business’ positive momentum and prospects before you read about it in the business pages.

I think the Australian formula is an excellent one and think it would have served me well, tweaked as indicated above, when I was starting off.  Over time you’d probably start to fill out the individual stock portion, perhaps keeping the total to 50% of the portfolio, and making occasional rebalances to keep the ETFs at the other 50% between them.