Historically, the market has returned roughly 10% including inflation. However, there are times when the market tanks.

Examples include the financial crisis of 2008-2009 and the Internet bubble burst that caused the general market to fall in 2000-2002.

If you’re worried about those uncommon but real tanking-market situations, there’s something you can do about your portfolio, so you can get more consistent returns: build a diversified portfolio of quality businesses.

Your portfolio can consist of income stocks that always generate a positive return in the form of cash dividends, growth stocks with above-average growth rates, and stocks with above-average yields that grow at a moderate rate. The last category of stocks has a balance of income and growth.

Income stocks

You can allocate, say, 20% of your portfolio to income stocks such as preferred shares and real estate investment trusts (REITs). It’s not uncommon to find REITs that yield 8%.

For instance, NorthWest Health Prop Real Est Inv Trust (TSX:NWH.UN) yields 8.3% at $9.65 per unit. Its adjusted-funds-from-operations payout ratio has been improving and now sits at 92%.

Additionally, it holds a high-quality portfolio of 120 healthcare properties in Canada, Brazil, Australasia, and Germany with a high occupancy rate of 96.1%. So, its high distribution should be sustainable.

Income-focused holdings like NorthWest can help stabilize your portfolio’s returns (in the form of cash distributions), especially in down markets.

Investors can buy NorthWest at a fair valuation today.

Growth stocks

You can allocate 30% of your portfolio to growth stocks, such as Express Scripts Holding Company (NASDAQ:ESRX). Investors should be pleased to know that Express Scripts, the largest pharmacy benefit manager in the U.S., is priced at a discount today.

Although it doesn’t pay a dividend, it’s only priced at 12.7 times its earnings, while it’s expected to grow its earnings by 10-12% in the medium term.

We can’t choose when a stock’s share price will go up, but by buying quality, discounted stocks with the goal of capital gains, investors can boost their portfolio returns over the long term.

Stocks with a balance of income and growth

You can allocate 50% of your portfolio to stocks that exhibit a balance of yield and growth. For example, TransCanada Corporation (TSX:TRP)(NYSE:TRP) yields 4.2%, and it expects to grow its dividend by 8-10% per year through 2020.

Its dividend is covered by its earnings and cash flows. Based on its forecast growth rate, it offers a potential return of 12-14%. If TransCanada dips to roughly $45.20 for a yield of around 5%, it’d be a strong buy.


By buying and holding a diversified portfolio of quality stocks with income and growth components, your portfolio should generate consistent returns no matter what the market or economy is doing.

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Fool contributor Kay Ng owns shares of Express Scripts, NORTHWEST HEALTHCARE PPTYS REIT UNITS, and TransCanada. The Motley Fool owns shares of Express Scripts.