I still think that the best investment strategy for a stock market investor is to keep their assets at home. The eurozone is in recession, and emerging markets are just that—emerging. Now, I’m not referring to trading where there are lots of opportunities in small-cap technology companies and U.S.-listed Chinese stocks. I’m talking about building blue chip positions for long-term wealth creation—and preservation. These are the kind of stocks that you can use to build a nest egg for retirement, or use for income while in retirement.
Previously, I featured PepsiCo, Inc. (NYSE/PEP) as the kind of blue chip company with which I think long-term investors can build a position when the stock is down. The best strategy with an investment in this kind of blue chip company is to take its dividends and reinvest them in new shares. You can do this through a dividend reinvestment plan (DRIP), and the company allows you to reinvest all or a portion of its dividends into new shares. Dividend reinvestment in a blue chip stock that has a solid track record is an excellent way for you to create wealth.
Another blue chip company that has a great track record of making money for shareholders is Colgate-Palmolive Company (NYSE/CL), which is much more than just a toothpaste business. I like this company, its products, and most importantly, its track record of wealth creation on the stock market. Pull up a long-term chart on Colgate-Palmolive, and you’ll see what I mean. This is a company that you can invest in when its share price is down. Build a position in Colgate-Palmolive over time, reinvest the dividends and you’re likely to generate a solid stock market return for yourself while you sleep at night. The company makes dish soap, toothpaste, deodorant, and pet food, among other things. These are the products that consumers still purchase, even when there’s a recession. Colgate-Palmolive’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
There are lots of blue chip companies in the marketplace from which to choose, but I have to admit, I have an affinity for consumer goods businesses—the kind of companies that are recession-resistant.
The key with blue chip investing is to reinvest those dividends into new shares. That’s how you build wealth from the stock market. (See “A Portfolio of Winners, It Doesn’t Have to Be Complicated.”) And when it comes time for retirement, you can change your strategy and use the income from those dividends for living expenses.
A lot of stock market investors and traders look to the market for capital gains. But the stock market isn’t very good at providing capital gains in a consistent manner. Typically, there are long periods of flat or negative returns, with major capital gains swiftly occurring for short periods of time. That’s how a lot of blue chip stocks trade. They don’t do a lot, until they do.
Over the last two years, Colgate-Palmolive appreciated approximately 37% on the stock market, and that doesn’t include dividends. For sure, it’s always worth looking for the next highflier, but it pays to include blue chips in your search. Capital gains, dividends, and a good dose of security are always welcome in a stock market portfolio.