Important Note:
I make no assurances or promises about the future long-term performance of any companies on my CORE stock list. It’s the responsibility of each investor to only purchase stocks after their own independent verification of the facts, consultation with professional advisers if need be, and with a willingness to accept full responsibility for the consequences of your own investment decisions. Your circumstances, goals, risk tolerance, and time frames are likely different from mine.
I’m not an investment professional and these stocks have risk that you need to consider before buying them. As I do with this entire blog, I’m showing you what I’ve done or plan to do in preparation for retirement. Look for ideas and then make your own decisions based on your unique situation.
Let’s Try This Again
In 2018 at the ripe old age of 55, I finally started getting serious about building my taxable stock portfolio. I’d tried this before, but it never worked out. Over the years, anything that wasn’t nailed down (i.e. tax deferred account) was likely to be spent (or lost). College for kids, pre-college programs/camps, consumerism, horrible penny stock “investments,” etc… destroyed previous attempts to build my taxable account.
So, I started from scratch just like I was a 25-year-old kid. Only this time, I’m not getting the benefit of compounding because I’m only 6 years away from retirement. The chart above shows that I’m building a stock portfolio that will be valued over $400,000 when I retire at 62. By the end of 2019, the plan shows I should have accumulated $50,712 in the taxable stock account.
My goal is to generate dependable and growing dividend income from this account. I’d like to minimize portfolio risk and reduce my chances of losing money. I’d also like some growth, which may or may not involve dividend paying companies.
Everyone needs to define how to run their portfolios (Stock Policy Statement – Taxable Account) and what types of stocks will comprise your portfolio. My goals are likely different than your goals, timing, and risk tolerance. To many people, this means what goes into our portfolio will would be a little different.
Would I build a portfolio for my 24 year-old daughter differently than the one I’m building? When I consult my kids on how to build a taxable portfolio, we’ll explore the pros/cons of mutual funds versus ETFs versus individual stocks.
Honestly, I’m very comfortable advising them to build their portfolio just like I’m building mine. The companies are solid, we could reinvest their dividends, and build them a passive dividend income stream that could allow them to retire at a time of their choosing.
SWANS – Sleep Well at Night Stocks
You can build a stock portfolio via individual stocks, mutual funds (managed or indexed), Exchanged Traded Funds (ETFs) or a combination of all three. My taxable portfolio is being built with individual stocks (mainly dividend stocks) and ETFs in a Vanguard taxable account.
These stocks will probably always be in my portfolio regardless of business conditions. God willing, these will be “buy and hold” stocks that reduce my taxes, expenses, and effort. Though I’ve identified a broad view in my Stock Policy Statement regarding selling stocks, it will be my intent to never sell these stocks.
Many of these companies have pricing power and should hold up fairly well during recessions. Even those that fall hard in cycles or recessions, they will come back because they have shown that in all prior recessions. They have good margins and are staples of everyday life.
Many are considered defensive stocks with strong balance sheets and excellent cash flow. But most have growing earnings per share over decades and it’s the expectation that the performance continues.
The main purpose of this portfolio is to generate reliable, consistent, rising dividend growth with some appreciation. Total return is important too – I’m usually buying these at good prices and with dividends above their historical norms.
Here’s my Master Stock List (Core & Non-Core stocks) posted on the front page of this blog.
Master Stock List
I’ve put together a list Rumpelstiltskin companies that will probably be around if we went into a cryogenic sleep and woke-up 30 years later. Likely every name will be recognizable. This Master Stock List will evolve as I do more research. It’s missing a few sectors (i.e. utilities) but I’m really focused on finding quality companies.
It’s my belief that the cycle of low interest rates will reverse itself over the next couple of decades – that’s my thought anyway. With that in mind, I’m paying some attention to those companies that either have lower debt or sufficient cash flow to easily service their debt and other obligations (i.e. dividends).
When the economy is going well, it seems like some stocks can do no wrong. These type of stocks are tied to economic booms and busts (cyclical stocks). And with these volatile swings, some stocks come crashing down when the good times end. I’m talking reductions of 50-75% and that’s not what I’m looking for in my Master Stock List.
The companies that could be highly sensitive to economic cycles will likely possess a smaller portion of my overall portfolio. These cyclical stocks consist of solid companies like Citigroup, Caterpillar, Honeywell, 3M, FedEx, and many more.
Summary
Because I’m 56 years-old, I won’t be taking on too much “speculative” risk. Remember, one of my goals is to preserve capital (i.e. not lose money) so high-quality companies are a must.
And though a younger person could take on more risk, I’d be fully supportive of building a portfolio of stocks that are in my Master Stock List. It’s possible that I’d include a few more mid-cap or growth companies but you’d have to keep a closer eye on them … they’ll likely be more volatile than more mature companies.
At my age, I want to sleep well at night and have a portfolio that requires very little maintenance. With that in mind, my Master Stock List is my choice for over 90% of my portfolio. Honestly, it’s likely 95% will be from the list because of my timeframe.
When you’ve defined your portfolio’s goal, do your research on the companies. Minimize mistakes, don’t take unnecessary risks, keep an eye on company debt, and be patient to purchase them at the right price. This is especially critical for stocks that don’t grow fast.
Periodically, I’ll provide updates on my portfolio so keep an eye for the updates. Additionally, I’ll provide a regular sticky at the top of this site to track my passive dividend income.
Building a taxable stock portfolio is a significant moment in your retirement planning so choose your approach carefully and develop a process that keeps you out of trouble. If I had done that earlier in my life, it’s possible I’d already be retired by now.
Thanks for reading!
Mr. TLR