Revealing the hidden costs of holding blue chip shares and then hoping for a result that may just be killing you financially.

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Australian Blue Chip Shares

More and more often, we meet new clients that have followed what they thought was good advice, “Buy and Hold”, only to end up paying a heavy price, several years later, and all they did was what they were told was right…

When we meet with new potential investors, one of the services we offer is called a Portfolio Spring Clean. Effectively, this is casting an eye over existing portfolios and offering advice as to how to re-position it, in order to generate a better outcome for the client.

Sadly, all too often, this reveals a few nightmares, and not the sort that the investor was necessarily expecting. You see, most people hold a few bottom drawer stocks – you know – the speculative mining stock that failed, or the tip on the biotech company and they didn’t work out. The result, “oh well put ‘em in the bottom drawer and wait and see what happens”.

However, more often than not that isn’t the real problem. Chances are with those sorts of stocks, they only had a few grand tied up, so not a materially damaging outcome.

But the real problem is not what people expect it to be…

Where clients, perhaps you too, often get the biggest shock, comes from the least expected of places, their core Blue Chip share holding. Typically, these represent a larger portion of a portfolio and in most people’s minds are the safer, better performing areas of the market.

But this is not always so, in fact, far from it. For example, let’s take the past 7 or 8 years – say back to mid 2007 and take a look at 4 of the most common typical portfolio stocks we see.

Australian Australian Stock Performance Chart

4 of the most common typical portfolio stocks performance since June 2007

On its own, this is pretty horrific, however, like most bad news, it tends to come in threes!

It doesn’t matter, I am investing for the dividend…

Quite often, the response can be “well its ok, I am investing for the dividends” which is perfectly logical and true for many retirees.

However, the hidden cost here, is the fall in the value of the underlying investments, and therefore the amount that any dividend is calculated upon. For example, a 5% dividend on AMP in June 2007, would have been 51.1c per share. Today, that same 5% dividend on AMP would be only 31.3c per share. So, on the surface, the stock is still paying a healthy yield, percentage wise, but from an income perspective, the actual dollar return that you get, has been slashed…

And then there is the silent killer of your standard of living…

Like I said, bad news typically comes in threes! Compounding this, and really hitting the hip pocket of investors and especially retirees, is the cost of living rise. Over this time frame, Australia’s cost of living has continued to push higher, effectively causing a double whammy of pain for investors.

Cost of living in red…

Price Increase in Household Goods Chart

Price Increase in Household Goods

So what can be done about it?

Some new, wiz-bang strategy that promises the World? Actually no. How about something that has been a proven outperformer over a long period of time and, better yet will not only enhance return but also reduce risk…

Taking an approach which generates an upfront and immediate income, and does so with a good level of consistency makes a lot of sense for many investors. After all, if what you have been doing isn’t working, or hasn’t delivered the returns that you seek, then it may be time to explore something different.

We have a series of Trading and Investing Courses on our website to help your get started with Generating Upfront and Immediate Income. You can also call our friendly team on 1300­ 304­ 500 to see how we can help you.

Originally from the UK, Andrew has been a market professional for almost 19 years, trading a wide range of global markets and instruments. As a highly regarded industry speaker, he has spoken alongside Sir Richard Branson, Robert Kiyosaki, Anthony Robbins and Tony Blair, empowering many thousands of people, from all over the world, with the skills, techniques and ...
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