Putting together a portfolio of stocks doesn’t have to be complicated. But a strong adherence to investment risk is useful with an equity market already at a record high.
What to Consider When Establishing Your Core Investing Portfolio
If anything, a substantial price correction would be helpful in terms of creating more attractive opportunities for new money, but building an equity market portfolio doesn’t have to be rushed. It should be deliberate, proportioned, and nimble to take advantage of what is the norm in capital markets—volatility.
I believe that an equity market investor can do well putting together a portfolio of approximately 12 to 14 stocks, with diversification among industry sectors and large- and smaller-cap stocks, commensurate with your overall tolerance for risk.
Preservation of capital is seemingly always an investment goal, but it’s a difficult thing to achieve in the equity market, particularly for those with a short-term horizon for investment.
I believe that dividend-paying large-caps should not be excluded from the portfolio process, even if an investor’s goal is to maximize capital gains. This is particularly the case in a slow-growth environment.
Top Stock Groups That Should Be a Part of Any Portfolio
Benchmark Dividend-Paying Stocks
A portfolio of stocks is well served by core positions—benchmark stocks that likely pay dividends, which can be reinvested. The kinds of stocks that fall into the category of longer-term benchmark positions might include companies like The Walt Disney Company (DIS), NIKE, Inc. (NKE), 3M Company (MMM), Johnson & Johnson (JNJ), and Visa Inc. (V).
The equity market will react emotionally to the daily stream of news, but these are the kinds of businesses with staying power and earnings predictability. They can be checked quarterly, and dividends can either be used for income or capital to reinvest in new shares.
Then perhaps there’s room for some cutting-edge companies, which can be considered on major price retrenchments.
Examples of these kinds of stocks may include Tesla Motors, Inc. (TSLA), Palo Alto Networks, Inc. (PANW), or Biogen Idec Inc. (BIIB). You can wait for the equity market to retrench and provide better entry points for these kinds of tradable growth stocks.
Special Situations Stocks
Then perhaps there’s room for one or two special situations—the kinds of stocks that may benefit from a unique set of circumstances.
For example, now that oil prices have corrected substantially, energy bets like Kinder Morgan, Inc. (KMI) or Cabot Oil & Gas Corporation (COG) may be useful. Or investors might consider an offshoot of a direct energy play, like Canadian National Railway Company (CNI), which is benefitting from lower fuel prices and is selling a lot of rail freight in U.S. dollars. (See “KMI, CNI, and Amgen: 3 Income Stocks to Watch in a Slow-Growth Market.”)
An equity market portfolio, I feel, should be a compilation of different stocks made up of core benchmarks, tradable growth, and special situations.
All of it doesn’t require any rush and names can be tweaked as times change. In any case, the stock market is going to go where it’s going to go. Good businesses tend to take care of themselves.