A recent lunch with a colleague who just graduated from college turned into a conversation on how to start investing for what will be her retirement in — gulp — roughly 50 years.
Like so many of her peers, she finds it’s hard to look much farther out on the financial landscape than next week, much less 10, 20 or 50 years from now, but she understands the need to start saving and investing — the sooner the better.
She’s already savvy enough to pay into a 401k plan, but she also wants to start buying some stocks on her own, using additional money saved from each paycheck.
Spreading the wealth around enough to have a diversified portfolio is a little tough on a small, fixed budget, so you really have to make sure you’re getting the most bang for your buck.
In the spirit of our discussion, we came up with five great stocks she could start accumulating on a budget — by saving roughly $75 per pay period, she could buy one share each of these stocks every month.
Cost: ~$38 per share
While the drink of choice for college-age students might not be Coca-Cola (NYSE:KO), it still sells the most popular soft drink on the planet, not to mention a host of other sodas, juice, water, tea … and most recently, protein shakes, by virtue of a purchase of Fair Oaks Farm Brands.
Warren Buffett’s biggest portfolio investment split its stock a few months ago, making it much more affordable. For $37 per share, you get a Dependable Dividend Stock yielding a solid 2.7%.
Chances are people will be drinking Coca-Cola products long beyond our grad’s retirement years, and I suspect she — and Mr. Buffett’s heirs — will be reaping the benefits of the stock the whole time.
Cost: ~$20 per share
Why Intel? Well, it’s the largest semiconductor manufacturer in the world, for one. While its troubles in the mobile sphere have been well-documented, INTC is making inroads on that front. That success story will be all the sweeter if you buy in now — shares are heavily beaten, down 16% year-to-date to nearly $20 per share.
And more important when considering the long haul: Intel has piles of cash that fund a juicy 4.5% dividend yield.
Cost: ~$34 per share
While my colleague uses Verizon (NYSE:VZ) for her Apple (NASDAQ:AAPL) iPhone, AT&T (NYSE:T) — with a price of $34 per share and a dividend yield north of 5% — looks like the better of the two telecom giants for this portfolio.
The company has plenty of cash in the vault, plus it generates more than $10 billion in free cash flow, so you won’t lose a wink over this dividend.
Yes, recent earnings were a little short of expectations, and new subscribers fell off, but considering what AT&T has weathered in the past, there’s little reason to worry. AT&T isn’t going anywhere anytime soon.
Utility Select Sector SPDR
Cost: ~$35 per unit
In the interest of full disclosure, I’m not a big fan of exchange-traded funds for my personal use. But if my college investor wants to truly diverisify, the Select Sector Utilities SPDR (NYSE:XLU) is one of the most cost-efficient ways to accomplish the task.
For a price of roughly $35 per unit, you’re getting exposure to 31 different holdings across the utility sector — as stable a source of income as you can find in equities. The fund leverages utility giants like Duke (NYSE:DUK) and Southern Co. (NYSE:SO), along with other energy interests like Oneok Partners (NYSE:OKS), a natural gas master limited partnership.
Utility stocks have taken it on the chin a little bit this year, but they’re generally solid over the very long term. What you’re really focused on here isn’t growth, but dividends — and XLU delivers with a roughly 4% yield. Not to mention, you’re paying a scant 0.18% in fees to jump into XLU, or just 18 cents a year for every $100 invested.
Cost: ~$22.50 per share
My colleague shops at Francesca‘s (NASDAQ:FRAN), as do many of her friends, and she’s already on its trail, having written about the company on several occasions during the year. And some investors have done very well by following the adage, “Buy what you know.”
At less than $23 per share, my colleague cannot only afford this potentially “growthy” stock, but she gets to contribute to the top line whenever she shops there. Meanwhile, the bottom line already looks pretty good, with earnings ahead of estimates in three of the past four quarters. Wall Street has taken notice, driving FRAN shares up 40% year-to-date.
Despite some recent concerns over changes in the company management, this could be one of those stocks you see as both a serious an investment and … well, just fun to own.
After all, keeping tabs on the merchandise is part of the due diligence.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he is long AAPL, MSFT, and VZ.