How to Build the Ultimate Investment Portfolio Part 3

Know How Much You Need A Work Towards That Goal
I have previously written about your portfolio number. This is the number that you need to achieve financial freedom and have passive income to the point that you don’t need to worry about anything as long as you control your expenses.
 

If you haven’t already, read my portfolio number article and think about how much you need (and not want) to survive off of a portfolio whether it be from interest or dividends. You should consider tax too, as every government takes a portion of your gains.
 
When you come up with a portfolio number, don’t be discouraged. The number is most likely are staggering number and that’s understandable. You need to understand that you are not going to achieve this overnight. It might not even in a few years, but through dedication and discipline, you will achieve your goal. At the very least, you will be much better off than those that do not even think about passive income or their portfolio number.
 
How Do You Save For Such a Large Number?
The reality is, it’s not all about saving. Of course, you need to put away a certain amount every month, but you also need to consider how your stocks will pay dividends and how your stocks and other portions of your portfolio (whether it be bonds or GICs) will pay interest. In addition, your equity (stock) exposure in your portfolio will grow over time and will help you reach your portfolio number.
 
Don’t Spend Your Dividends!
When you get dividends, you’ll be tempted to spend it but don’t. Leave your investments and investment income alone and reinvest everything until you reach your portfolio. The more you invest and reinvest, the quicker you will be able to achieve your goals. Give your portfolio a chance to grow.

Diversify Your Purchases
As I have written about the past two days in part 1 and part 2 about building the ultimate investment portfolio, you will need to buy stocks that pay dividends on every month of the year. You can overbuy something that you really like but don’t over do it. You can purchase maybe an extra 10% in comparison to everything else you have in your portfolio.
 
You want to split up your purchases so that you have growth in all aspects of your portfolio and if there is a downturn hopefully one industry will offset another or one part of your portfolio will ease the pain of the falling markets. You obviously need to invest or put away money on a regular basis, to take this one step further, have a schedule as to when you will buy what stock. Don’t worry about the price of the stocks just worry about the quality of the stocks. You need to dollar-cost-average your stocks. Make sure you read my Dollar-Cost-Averaging article if you haven’t already.
 
Don’t Panic! Patience is a virtue
Markets will fall, there will be days where it looks like all hell has broken loose. But don’t worry history repeats itself and as long as you have bought quality stocks then you will be ok. However, pay attention to what happens to each company, things can change and just because a company is the most stable in the world right now, doesn’t mean they will be the same 5 years from now. Always review what you have in your portfolio.
 
Readjust Your Portfolio
When a certain stock takes off or something happens such as a takeover that makes one stock put your portfolio out of balance, consider selling a portfolio of that stock and buying something else to offset the difference. This way you can mitigate your risk of having too much in something while realizing some gains and putting you one step closer to your portfolio number.
 
Mo2 Thinks
Despite having written about this over 3 days, there is much more to building the Ultimate Investment Portfolio. The more you know about investing the better and I suggest that if you’re serious about building such a portfolio you start watching business news and do research on your own about stocks and the economy. However, don’t let the media drive you crazy. What they often talk about on channels like CNBC can be inflated and isn’t necessarily going to be helping you make decisions. Always take things with a grain of salt. There are many things that CNBC can help you with such as giving you exposure to a lot of investments and their valuations.
 
You can do a lot of research through your discount online broker. Every discount online brokerage nowadays has plenty of research information and this is a great way for all of us to learn more about investing. For example, if you’re looking for a certain stock that pays dividends that are yielding over 7% most online brokerage firms should allow you to do that online. Play around.
 
Always think longer term. Not even the greatest professional fund managers can predict what is going to happen in the market. Even if they time it right, most of it is luck while some of it is experience. If you have a longer-term mindset you can succeed and I hope that this article has helped you change or strengthen the belief that an investment portfolio that will make you financially free is indeed possible for everyone.

How to Build the Ultimate Investment Portfolio Part 2

In light of writing the first edition of “How to build the Ultimate Portfolio” I thought about the details that we would have to think about when putting it into practice. Everything is life is easy to say or write about, but putting it into practice is a whole different dimension. That’s why so many get rich books sell so well while most people that read those books don’t get rich.
 

The get rich books often talk about the mindset or some things that need to be done to get rich, but every person is different and that’s why you the reader, has to take action and push yourself possibly outside of your comfort zone to learn and create a portfolio that suits you needs.
 
Not every portfolio is going to be the same and it really shouldn’t be. We all have different tastes, different risk tolerances, and different goals. That’s what makes each and every one of us unique and that’s also what makes each and every one of also interesting.
 
Think About Who YOU Are
That’s right, before you go out there buying stocks out of the blue, think about who you are. What kind of person are you? What kind of situations can you endure? Can you bear to watch the market fall 30%? Can you live off of 2% interest income? Do you have to invest in penny stocks? Putting all this together leads to understanding your risk tolerance.
 
What do you like?
We all have preferences in what we like, and this can be on a daily level but I’m talking more about stocks and industries for the purpose of this article. I have a preference towards financial stocks because of their stability. Yes, as I’ve said time and time again, the financial stocks have been hit very hard, but in reality you have to understand that some of these financial institutions have some very smart people working and a lot of them in reality are very stable when the dust settles.
 
Look at all the industries you might have a preference for Technology, Basic Materials, Utilities, or even Healthcare. Whatever it is, it’s ok to have some bias in your portfolio leaning towards that sector, and after all it is your portfolio.
 
Thinking about Dividends
For the purpose of the ultimate portfolio I am talking about here, the stocks have to have dividends. And this means you are looking for extremely stable companies that have a good chance of dividend growth going forward, not just a few years, but many many years down the road.

So in reality, you’ll probably be looking at the top 2 companies in each sector. You could potentially look a little further down the list depending on the sector but you have to pick stable companies.
 
Know What You’re Looking For
You don’t want to pick a company just because it’s market capitalization is big (number of outstanding shares x share price). You want to choose a stock because you believe in the company and you believe in the industry. Have criteria that you look for when choosing a stock, it could be anything from technical indicators to fundamental figures. You have to make sure you do your homework before you buy anything. If it were easy everyone would be doing it.
 
Choosing A Broker
Limiting the fees that you incur is integral in creating an ultimate portfolio. Although, you won’t be buying and selling like a mad trader, you still need to make it so that you can limit your fees to help grow your portfolio. Find a broker or online broker that can help you with this. Some online brokerage services give you good discounts if you invest over a certain amount such as $100,000 with them. Shop around and see what the best brokerage is for you. Some offer better research than others while some offer lower transaction fees, it’s really up to you what you’re looking for.

Tomorrow I’ll write about what goals to have and how you can chip away working at your portfolio number. Thanks for reading!

How to Build the Ultimate Investment Portfolio

You hear so much about diversification and I cannot stress enough how important it is. By diversifying your portfolio you give yourself a chance to survive in tough times, like we are going through now, and a chance to thrive in bull markets. Creating a diversified portfolio is just one step of many and in this article I want to take a diversified portfolio one step further and help you create the ultimate investment portfolio.

Dividends and Financial Freedom
I am a firm believer in dividends. In Canada, we are given a dividend tax credit that makes owning stocks of Canadian dividend paying stocks that much sweeter. Similar tax benefits may exist in other countries and for this you must ask you accountant or a tax expert.

By owning stocks of stable companies that pay dividends you are giving yourself a very good cash flow that you can rely on for a long time. But you don’t want to concentrate your stocks in any one industry such as financials and I’m sure many of us know this from how badly bank stocks were hit in the past year.

You want to have stable dividend-paying stocks in each industry and you want to continuously add to this with the dollar-cost-averaging strategy. Over time your cost base of stocks will look very attractive relative to the market and you might be able to realize a decent profit. Even in a horrible downtrend that we are going through, your portfolio will be doing relatively better.

Creating the Ultimate Investment Portfolio
Ideally you want to have income on a monthly basis and when you are doing your research you will see that every stock has dividends paying on different months. You can then choose your stocks on their quality first and then divide them on every month of the year. In times like we are going through now, you can start creating a portfolio relatively cheap especially if you are thinking longer term.

Setup a plan to add to your portfolio on a regular basis, this could be weekly, bi-weekly or monthly. Tell yourself that you will contribute a set amount or percentage of your income into your portfolio. You have to be disciplined to create your ultimate investment portfolio. Come back tomorrow for more details on creating the actually portfolio!