So, you want to be a successful long-term investor? Do you want to be able to make significant, risk-free returns? You want to be able to make long-term choices, without worrying about the short-term market shifts and volatility? Well, to achieve all that, you need a good portfolio setup.
Poorly structured portfolios are one of the main factors that can hold you back. They’re also one of the things that most beginners mess up. And, guys, please know that I’m not trying to be mean. This is a very common mistake and something that I get a lot of questions about all the time. But don’t worry, because I’ll explain everything in this blog.
Before we dive into our portfolio discussion, I just want to remind you to please like and share the blog with your friends and family if you want to see the channel grow. Making these blogs is an absolute delight, but it takes a whole lot of time and effort, and seeing your feedback makes it all worth it! Check out my other blogs such as, “Five Tech Stocks to Consider for November 2020“.
That’s right – today, we’re going to take a look at how to structure your portfolio for long-term investments. I’ll break it all down and walk you through the entire process and the necessary mindset. I’ll also explain how I structure my own portfolios and why I do the things that I do. We’ll talk about:
- The different types of stocks
- How to categories the stocks in your portfolio
- What to look for and where to look for it
And, yes, this is yet another mindset-related blog. But, if you’ve been here for a while, you already know that having the correct mindset is a must on the Stock Market. So, without further ado, let’s dive right in!
The three categories that you’re looking for are:
Foundational stocks are the most reputable and solid positions that you’re holding. They’re the building blocks of any successful, long-term portfolio. You’re looking for stability, large market caps, great financial stats. These companies are, on average, going to withstand market volatility and short-term problems a lot easier.
Think Microsoft, Apple, Amazon, Facebook, and so on. Of course, you don’t see explosive growth here, because they’re already huge, but that’s not really a problem. Remember – we’re looking for stability here. Growth stocks have their own category that we’ll get to in a minute.
A good, well-rounded portfolio is going to feature somewhere between four and five foundational stocks (7-10% each). This should amount up to about 30% to 50% of your entire portfolio. The higher the percentage here, the safer you will be overall. If half of your portfolio is made up of foundational stocks, you are in a very secure position.
If you decide to go for a more “higher risk, higher reward” type of portfolio, you can shift your funds towards other stocks. But remember – the closer you get to that 30%, the less stable your overall position on the Stock Market is going to be. If you are a beginner, I would suggest that you stick as close to fifty percent as possible.
For a safe and well-rounded portfolio, you will want between five and ten middle stocks (at 3%-10%). This should make up the other major part of your portfolio – around fifty to sixty percent. Yes, I know that the number seems high, but that’s because this category is split into three sub-parts.
- Dividend Stocks – Ideally, you’re looking for around a 3% dividend yield. The only type of dividend stocks that are worth your time is the ones that have a history of paying and increasing their dividend percentage over a long period of time and a low payout ratio. Think PepsiCo, JNJ, etc.
As a side note, please stay away from huge dividend percentage stocks, because those are usually just straight up bad (I talk more about this subject in one of my other blogs, as always, I’ll leave a link for you down in the description)
- Value Stocks – Here, you’re looking for companies with solid profitability that are valued low (cheaper stocks). And, of course, as with all types of long-term investments, you should never invest in a company that you don’t believe in. Ideally, your value stock will also offer a stable dividend, but that’s not a hard requirement. Here are some examples for you – AT&T, Abbvie Inc.,
- Growth Stocks – Growth stocks are companies with a solid business model that show a ton of promise in the long-term (you’re essentially looking for a good moat), positioned in a growing market. It’s best to buy growth stocks on dips. Examples for good growth stocks would be Tesla Inc. (yes, yes I know, I promised I wouldn’t spend time talking about Tesla for at least a few blogs, but they fit the bill here!)
Be careful with the valuations – if a company is really promising, investors are likely to flock to it. This will drive the price up to and create a risk factor for you (and everyone involved).
Now, you’re probably thinking – But Antoaneta, if 50% of my portfolio is foundational stocks and then sixty percent is middle stocks … Math doesn’t work like that!? Well, of course, it doesn’t. That’s why I’m giving you rough numbers. You can mix and match your percentages, depending on your knowledge and interests. You can do fifty-fifty with foundational and middle stocks, or you can go for 30% foundational 60% middle stocks (even leaving a bit for speculative stocks) if you are feeling more adventurous. As long as you are choosing good companies, both approaches will do just fine.
Speculative Stocks – Now, this is a bit advanced, and I wouldn’t necessarily suggest it for beginners, but there are safe ways of getting into spec stocks. If you do decide to go for it, make sure that you keep no more than three speculative stocks in your portfolio. They should be between zero (below one) and five percent each. As a total, speculative stocks should make no more than 10 percent of your total portfolio.
This is crucial if you want to be safe and successful in the long-term as a beginner, or even a somewhat experienced investor. Yes, I know that there are some people out there who make an absolute killing with spec stocks, but this isn’t our aim here, and I personally am not a big fan of speculative investments.
Speculation is very different from your standard long-term investing. When you’re doing your foundation stocks or your dividends and your growth stocks, you’re going with solid numbers. You see how the companies were doing so far, and you make your choices, based on concrete facts. Spec stocks are the exact opposite approach – You are not betting on the solid numbers you’re seeing, but gambling on what they might be able to do in the future.
So, when shopping for spec stocks, you’re looking for companies that are either unprofitable or have only recently begun seeing profits.
Examples – Carnival Crop., Delta Air Lines Inc., Glu Mobile Inc.,
And these are the three main ways to categorize stocks in your portfolio. In closing, let’s do a quick summary:
- Always do your research – this is not up for debate. If you want to be a successful long-term investor, you need to do your research, and you need to do it well. For a detailed explanation of how to do stock research, check out my blog in the description.
- You want to keep your portfolio diverse between industries – don’t focus solely on a single industry, even if you are very knowledgeable about it. You want to branch out to be safe.
- Start with a solid foundation and build your portfolio around it – find a couple of well-known, established companies with a proven track record of success. They will provide you with a good starting place.
- Don’t focus solely on one type of stocks – You also want to keep your portfolio diverse in the kind of stocks that you own. After getting your foundational stocks, take your time, and branch out a bit. Add some growth and some value. You will make more returns in the long run.
So, all in all, research and diversification are going to be your top two priorities. As long as you get that down, you are on the right track.
Before we wrap things up for today, I just want to quickly tell you about a cool little tool that I’ve been using for a while- Morning Brew. Morning brew is a daily newsletter service that puts all of the latest info about the business world directly into your mailbox. Every morning, I get a short and sweet summary of the most important developments in the financial world, allowing me to stay on top of my game, without spending too much time reading through articles or media.
As always, I want to thank everyone for being with me here today, and if you enjoyed this blog, “How to Set Up Your Portfolio For Success”, please don’t forget to let me know by giving me alike! If you have any questions, ideas, or experiences, that you’d like to talk about, please don’t hesitate to share them with the rest of the class in the comments section down below! Alternatively, you can always reach me on social media – Facebook, Instagram, Twitter, Pinterest, YouTube, or send me an email at firstname.lastname@example.org.
Thank you all for reading, and I’ll see you all in the next blog!
Recommended books for further reading:
- The Power of Now: A Guide to Spiritual Enlightenment
- How to Win Friends and Influence People
- The 7 Habits of Highly Effective People
- Finding My Virginity – Richard Branson
- 24 Assets – Daniel Priestley