6 Ways to Build Your Stock Portfolio (Portfolio Strategy)
Ready to dip your toes into the ocean of investing? Before you dive in, let's get one thing straight: You need a map to navigate these waters. Without a game plan, you're just floating aimlessly - and that's a risky way to swim.
Think about it like this: You wouldn't set off on a road trip without a route or direction in mind, right? You'd end up lost, frustrated, and miles from your destination. Investing without a plan is pretty much the same deal. You might pick up a few interesting souvenirs along the way, but without a clear route, you could drive off course and miss out on reaching your financial dreams.
This guide will walk you through some popular strategies to build a stock portfolio that fits your risk tolerance and goals. Whether you're a risk-taker looking for the fast lane to profits or prefer a slower, more scenic route to wealth, this article got you covered.
Now, let's explore some popular ways to structure your stock portfolio:
1. The Warren Buffett Portfolio
This strategy is named after legendary investor Warren Buffett, who is known for his long-term value investing approach. The portfolio is heavily weighted towards large company funds, which typically represent stable, well-established businesses. As such, this strategy is great for investors who are looking for steady growth over a long time period and are less comfortable with high volatility. This approach is generally considered lower risk, but remember, all investing involves some level of risk.
It includes:
90% in a Large Company Fund, such as $VOO or $VV
10% in a Short-term Treasury Bond, like $SHY
2. The Explorer Portfolio
The Explorer Portfolio allows you to experience stock picking with a small portion of your portfolio, while still maintaining a diversified core. This approach is suitable for those who wish to learn more about individual stock analysis and selection, but still want the stability of a broad market fund. The risk level depends on the specific stocks you choose for the 10% of the portfolio, but the majority in a core ETF provides a level of safety.
The breakdown is as follows:
90% in 1 core ETF. This could be:
$VT (for exposure to the global stock market)
$VTI (for exposure to the entire US stock market)
$VOO (for exposure to the top 500 US companies)
10% spread across 5 individual stocks of your choosing
3. The Three Fund Portfolio
This portfolio provides broad exposure to U.S. stocks, international stocks, and bonds. It's a simple yet diversified strategy that's suitable for investors who want a balance of assets but prefer a hands-off approach. The risk is spread out across different asset classes and economies, which can help manage overall portfolio volatility. However, the specific risk level can be adjusted by changing the percentage allocation between these three funds.
It's broken down as follows:
50% in a U.S. Stock Market Fund, like $VTI or $VOO
30% in an International Stock Market Fund, such as $VXUS
20% in a Total Bond Market Fund, such as $BND
You can adjust the percentages based on your personal risk tolerance.
4. The Single Navigator Portfolio
The Single Navigator Portfolio simplifies investing to the extreme by investing entirely in one core ETF. This strategy is for those who want broad exposure to the stock market but prefer simplicity in their investment approach. The risk associated with this portfolio is generally tied to the overall market risk, as you're investing in a broad basket of companies.
100% in 1 core ETF, which could be $VT, $VTI, or $VOO
5. The Aggressive Growth Portfolio
This strategy has a higher risk level and potential for greater returns. It's best for investors who are comfortable with more volatility and have a longer time horizon to ride out any market downturns. The emphasis on tech ETFs and concentrated stock picks means this portfolio could experience significant swings, both up and down. This portfolio is not for the risk-adverse.
It focuses on tech exposure and stock concentration:
60% in one Core ETF, such as $VOO or $VT
30% in a Tech ETF, such as $QQQ or $VUG
10% in two stocks of your choice
6. The Target Date Fund
A Target Date Fund adjusts its asset allocation over time, becoming more conservative as the target retirement date approaches. This means it starts with a higher risk level and gradually becomes more risk-averse. This fund is suitable for those who want a completely hands-off approach to their investment and prefer to leave the adjustments to professionals. It's a good fit for those saving for retirement, with the fund's target date ideally aligning with your expected retirement year.
To find a Target Date Fund, simply search for "[Provider] Target Date Fund [Retirement Year]" on Google.
For example, "Vanguard Target Date Fund 2050" would yield $VFIFX.
Final Thoughts: 6 Ways to Build Your Stock Portfolio
These blueprints are just starting points and can be tweaked to suit your individual risk tolerance and investment goals. The important thing is to have a plan in place before you start investing, so you aren't just blindly throwing money into the stock market. Remember, every good investor has a strategy!
By the way: Sign up for my email list to be the first to know when I publish a new blog post!
I recently put together a master list of 100 different ETFs designed to support different investment goals. You can grab it here.
And as always: Stack assets & enjoy life.
-Josh
Blog Post: #125
