How to make money with minimum effort

When it comes to our investments, most of us are pretty apathetic. With that in mind, Merryn Somerset Webb picks her top long-term, low-risk shares.

FIGURES out last week claimed that 1.8m British adults never review their financial situation. That isn't true, of course. The real number is much higher, but people just find it embarrassing to admit it to strangers. Another 8m adults review their finances once a year. That's not true either. If it were, would so many of us be so deeply in hock to banks and credit-card companies and would home possessions be rising so fast? I doubt it.

Perhaps people define the word review differently, but the truth is that most of us are apathetic. We may concentrate quite hard when we take out our mortgage, but we rarely think about it again. Same with credit cards, loans and even investments.

We buy funds and shares that look good for some reason or other, and then we just keep them: we buy and hold not because we are convinced it is the best strategy but because once we've done the buying bit we rarely get round to the selling bit.

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I find I fall into this trap particularly often with my self-select Isa. Because I'm constantly putting money into it to take advantage of the full tax allowance, there is much more pressure to find things to buy (this can be tough when you are of a bearish bent) than to sell.

I already have far too much cash in my account and have been reminded by my provider that the taxman takes a dim view of people who keep large amounts of cash in equity Isa wrappers for more than a few months, so I hardly have an incentive to sell something to raise more cash. This is particularly true given that I earn an absurdly tiny interest rate of 2% on the cash sitting in my Isa.

With all this in mind I've been thinking about stocks that will reward me for apathy those that might look uninspiring now but which, if left unreviewed and unsold for five years (which is what usually happens to my Isa stocks), are unlikely to lose me money, very likely to make me enough to keep pace with inflation and quite likely to make a great deal more. With inflation at 4.4%, there is no way a savings account can do this any more.

These stocks can't be small or remotely risky. I want them to still be with us in five years and I know I am not going to be watching them very carefully in the meantime, so I'm really after blue chips. They need to pay a good dividend so they can meet my inflation criteria. They should have some capacity for growth a dividend alone won't be enough to preserve my capital in today's environment. And finally they need to be cheap. If they are cheap now the worst that can happen is that they will still be cheap in five years.

Regular readers will not be surprised that the top pick has to be Shell (RDSA). Even after all the nasties at BP over the past year Shell is still cheaper than its rival and trading at a 25% discount to America's Exxon Mobil. You can pick up the shares for much the same price as you could in 1997 despite the 100% rise in oil since.

The oil price may have fallen in the past few months but unless you genuinely think it will keep falling and be significantly lower in 2013 than it is now (and I can't see how, given the supply-and-demand situation) this has got to be the kind of sleeper stock you want in your Isa.

Those in doubt should note the 4% dividend yield and the price/earnings ratio of 8.7 times. As recently as 1999 the market was prepared to pay a p/e of 20 for Shell. Give it another five years and I think it may do so again.

Another one to look at is HSBC (HSBA). I'm not, in general, a great fan of the banks at the moment, but look at the valuation a p/e of 12 times and a dividend of nearly 5%. This is far too cheap for one of the world's largest banks. HSBC has a hugely diversified business with strong revenues coming from China, Hong Kong and the rest of Asia, so unless the world shrinks in the next five years, HSBC will grow. Another perfect sleeper stock.

Next you might consider packaging firm Rexam (REX). It's a blue chip, trades on a p/e of 10.5 times and pays a dividend of 3.5% so it qualifies on every count.

Finally you have to have a miner in an Isa. The most obvious long-term dynamic in the global economy is the growth of Asia. We know that growth needs fuel coal, copper, nickel, uranium, iron ore and just about every other mined commodity. And we know that the supply of all these things is tight.

That means apathetic investors, particularly those unlikely to notice any volatility over the next few years, should find that a few miners will be good additions to their portfolio.

I already have rather too much Xstrata so I think I may take the advice of Tim Price at Union Bancaire Prive and buy BHP Billiton (BLT). The shares are trading on a p/e of not much more than eight times and are, he says, "hard to beat as a long-term investment".

First published in The Sunday Times 28/1/07

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.