As 2018 takes shape, the time has come for an update on my Starter Portfolios.
First published in the March 2017 issue of The Daily Paycheck, these three portfolios offer an easy template for investors from all walks of life, on any budget. And today, I'm letting all StreetAuthority readers in on the action with a preview of each portfolio's holdings. (To get full access to these portfolios --and the rest of my Daily Paycheck picks -- follow this link.)
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OK, so here's how this works...
I'm going to show you three portfolios -- each of which could easily be started with as little as $10,000 or even less. They are designed to address a variety of stages of an investor's saving/investing/spending cycles. They could also easily be adapted to fit a variety of risk tolerances, timelines, and investment goals.
Also, the income from these portfolios can all be reinvested -- a key element of my Daily Paycheck strategy.
Bottom line, think of these as a "first step" guide for starting a diversified portfolio -- as a base to be built upon, with new investments, new funds, stocks and bonds to be added along the way.
For instance, investors with the highest risk tolerance and the longest investment horizon will find the Aggressive Portfolio to be a good starting point for many of their needs. The Aggressive Portfolio will also be a better fit for those investors whose income needs are low right now. Do note, however, that even this portfolio generates a relatively high (for this market environment) dividend yield of more than 3%. This particular portfolio can also be used with a dividend reinvestment strategy, which will help supercharge your returns.
The Moderate Portfolio is designed for investors who are mostly still "savers," not "spenders" -- investors whose investing horizons are shorter and whose retirements are approaching. Those with 15 to 20 years to retirement will probably fit best for the "moderate" profile and will benefit most from the design of these portfolios. Again, these investors typically have less need for portfolio income, and can also benefit from reinvesting their dividends.
Designed for investors who have already retired or are about to retire, my Conservative Portfolio has the highest income generation component of the three model portfolios. Still, even investors at this stage of their lives usually benefit from having a growth component in their portfolios -- hence the sample portfolio's inclusion of the lower-yielding but higher-growing ETFs.
Three Paths, One Goal
Of course, there is a reason I call the three model portfolios above "starter" portfolios. Any of the three allow you to start investing -- in a relatively wide swatch of investment sectors -- on a budget. That's because all three portfolios are constructed from exchange-traded funds (ETFs) and closed-end funds (CEFs) that offer the advantage of instant diversification.
When it comes to fixed income, the Starter Portfolios are focused on the lower-duration, higher-yield choices. While these funds are more leveraged to the strength of the economy, there is less danger there at this time. Most of the danger to fixed income seems to be coming from rising rates -- and the shorter the duration, the less the potential impact of the higher rates on the value of the fixed income investment.
The first holding these portfolios have in common, the Schwab U.S. Dividend Equity ETF (NYSE: SCHD) is an ultra-low-cost passively managed fund with a focus on both dividends and capital appreciation. It's based in the U.S. markets and is constructed from high-quality dividend-paying U.S. companies with a record of consistent dividend payments.
The other, the SPDR Bloomberg Barclays Convertible Securities (NYSE: CWB), represents convertible securities, and so might help with both diversification efforts and protecting against sharply rising interest rates (to some extent). Convertible securities have qualities of both stocks and bonds: They typically carry a fixed coupon rate and maturity, but also an option to exchange the principal amount for common stock at a pre-set price. The hybrid nature of the convertibles should mean that the sector could become a defensive sector of choice for both equity and bond investors if rates rise too sharply.
And just like last year, I've kept some cash allocation in the sample portfolios to further highlight the flexibility of one's choices. By moving the amount dedicated to cash a bit (or a lot) lower or higher, investors can further address their personal risk tolerances.
Reliable Income For All
No matter which portfolio suits your preferences or how much money you have to invest, rest assured that you will be receiving reliable, market-beating dividend income for years to come.
When used as a starting point for my Daily Paycheck system -- these holdings create a portfolio that is both highly stable and high-yielding -- in any market environment. In fact, overall, my strategy has been 31% percent less volatile than the wider market.
Since beginning our little experiment eight years ago, at last count we've earned $125,745 in income "paychecks" from a $200,000 initial portfolio. That comes to an average of $1,309 per month -- and the paychecks are only getting bigger.
Whether you're starting with $200,000 or $10,000... Just think of what you could you do with extra money. To learn more about how you can put our "Dividend Trifecta" to work for you, click here.
This article originally appeared on StreetAuthority.com.