As far as the new decade has gone so far, it’s not off to a great start. We entered 2020 on after a resounding election victory that meant Brexit uncertainty might soon end. The FTSE 100 index was also performing well, and the economy didn’t look close to a recession.
The Covid-19 pandemic quickly changed all of the above, and the FTSE 100 index is down around 25% year to date. But a decade is a long time, and we’re less than half a year into it. So for stock investors looking at the long term, below are my top three strategies for the decade.
Buy defensive
Without wishing to start off overly gloomy, my first idea would be to buy defensive stocks. Defensive stocks are those that perform well during a downturn. This is usually due to the products/services offered being a necessity for consumers and being bought regardless of the economic performance. Good examples of this are supermarkets such as J Sainsbury, and healthcare firms such as Astrazeneca.Â
My rationale for this long-term play is that we recently ended the longest stock market bull run in history. So it may take a few years to get up to the speed of gains we saw in the past few years. We may recover most of the losses from the pandemic in the next year, but having this cautious tilt to your stock portfolio will definitely help you to sleep easier.Â
Buy high growth
The ‘exciting’ firms of today can often be the stalwarts of tomorrow. Now obviously, if you knew that certain growing firms would be profitable buys, you’d simply buy them all. But you can never know that and high-growth firms are riskier to invest in. In order to counterbalance this risk, mix your investments into half a dozen growth firms. This means that even if some fail to really break through in the decade, having one that does (and doubles the share price) more than makes up for it.
As examples, take a look at the story and growth behind Ocado, Flutter Entertainment and Games Workshop (actually a FTSE 250 firm). I wrote more about the merits of high-growth businesses here, and how they can aid early retirement.
Buy safe dividend stocks
Until recently, most FTSE 100 firms were paying dividends, and exceptionally few had the need to cut them. Yet due to the pandemic, even income-paying stalwarts such as ITV and Royal Dutch Shell have slashed them.
For some firms, it will take a while before the board has enough confidence to resume paying dividends. So when looking at the next decade, it’s important to buy safe dividends wherever possible. Adding stocks that pay out dividends is vital to support your other strategies.
High-growth firms usually look to reinvest profits to support further expansion, and defensive stocks usually don’t offer high dividend yields. So seeking income is wise to support the other two ideas.
Overall, my top three themes for the decade aim to cover most scenarios. Now let’s sit back and see what happens!