The Beginners’ Portfolio Buys Aviva plc


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The Beginners’ Portfolio is a virtual portfolio, with all costs, spreads and dividends accounted for. Transactions are for educational purposes only and do not constitute advice to buy or sell.

It’s taken a while, but I’ve finally decided on the last of the ten shares to take their exalted place in the Fool’s Beginners’ Portfolio. After deciding that an insurer could offer us good prospects while adding a bit of diversity, the choice was between RSA Insurance Group (LSE: RSA) and Aviva (LSE: AV), both of which have slashed their dividends recently and have seen their share prices falling.

The choice is Aviva, and we got 151 shares at a price at 321.4p, which commission and stamp duty took to a total cost of £497.71.

Here’s what the final purchase tally looks like, with all 10 portfolio places filled:

Company Buy price Share cost Charges Total cost
Vodafone 168.5p £487.07 £12.44 £499.51
Tesco 305.5p £485.80 £12.43 £498.23
GlaxoSmithKline 1,440.5p £489.77 £12.45 £502.22
Persimmon 617.9p £488.11 £12.44 £500.55
Blinkx
36.9p £487.24 £12.44 £499.68
BP
434.5p £486.58 £12.43 £499.01
Rio Tinto 3,048.4p £487.74 £12.44 £500.18
BAE Systems 332.3p £485.16 £12.43 £497.59
Apple $458.40 £588.48 £17.50 £605.98
Aviva 321.4p £458.28 £12.43 £497.71
Total   £4,944.23 £129.43 £5,100.66

We’ve invested £100 more than our original target of £5,000, simply because that’s what it took to get hold of two Apple shares. I could have reduced the investment in Aviva to compensate, but I really didn’t want to drop the final slice as low as £400.

Why Aviva?

Here are some of the valuation fundamentals of our two insurance candidates:

Company Price Historic
EPS
Historic
dividend
Forecast
EPS
Forecast
dividend
Forward
P/E
RSA 116p 9.5p 5.8% 12.5p 6.3% 9.3
Aviva 321p -15.2p 5.1% 45.7p 6.6% 7.0

On these figures, both look cheap to me, but I think Aviva shareholders have been more shaken by the dividend cut and the shares have been oversold a little more fiercely. But really, I think I’d be happy to hold either of these companies (and I have owned RSA shares in the past, myself).

So the portfolio is now full, and I won’t be investing in any new companies unless I choose to sell one of the existing holdings. And I’ll only do that if I believe a share has become overvalued or there’s a significantly better place for the money. Knowing when to sell is my weakest point, so that will be a challenge for me.

Valuation update

I’ll do a valuation update in due course, but I think a quick mention of Vodafone (LSE: VOD) is in order. As I wrote recently, I believe Vodafone is one of those great long-term investments that’s ideal for an ISA.

Though it’s still early days, Vodafone has already done well for the portfolio. Since I kicked off the portfolio by buying the shares at 168.5p apiece in May 2012, we’re up 11.7% (excluding dividends) based on the current bid price of 188.3p.

Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has recommended Apple, GlaxoSmithKline, and Vodafone. The Motley Fool UK owns shares of Apple and Tesco. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.