Readers of my column know that I often make reference to “your long-term diversified portfolio.” That’s because I think any serious investor is in the market for the long haul, and the portfolio must be diversified across many different asset classes. Diversification, properly allocated, will ideally smooth out your risk over time and provide you with market-beating returns with less risk than the overall market offers.
So what the heck is actually in a long-term diversified portfolio? Only you can answer that based on your risk tolerance, time horizon and overall financial plan. What I can offer is the diversified portfolio I would construct today if I were an investor with a 30-year time horizon, and average risk tolerance.
Today I’ll focus on large-cap growth stocks, which might consist of 15% of my overall portfolio.
With large-cap growth stocks, I want to anchor the asset class with at least one ETF and stuff the rest of the class with stocks I want to own for at least the next 10 years. I can’t commit to a 30-year time frame since … well, growth stocks eventually will stop being growth stocks. Nonetheless, these are world-class brands that have always been around and always will be around.
I’m grounding this asset class with a core position in the iShares Russell 1000 Growth Index (IWF). The ETF itself contains world-class names like Exxon Mobil (XOM), Google (GOOG) and IBM (IBM), and charges a bargain-basement 0.2% in expenses.
I will add to this ETF, and in some cases it will mean adding stocks that are already represented in the ETF index. I’m not concerned about this extra weighting because the amount of each stock represented in the ETF is not that large. I’d add Amazon.com (AMZN) and Apple (AAPL).
I like a few consumer stocks here. Coca-Cola (KO), Walt Disney (DIS), McDonald’s (MCD), Philip Morris International (PM), Starbucks (SBUX) and Yum! Brands (YUM) are all proven winners. They all survived the recession just fine, producing billions in free cash flow. None of them carry debt risk, and all are projected to grow nicely over the next five years. In addition, most pay dividends, between which I would reinvest.
I’m adding three financials — assuming you can call Berkshire Hathaway B Shares (BRK.B) a financial — along with Bank of America (BAC) and U.S. Bancorp (USB). Buffett is a no-brainer. BofA services 80% of the country’s mortgages without exposure to the actual paper itself. U.S. Bancorp had little exposure to toxic mortgages and is a really well-managed bank.
As for the rest, I’m betting on Wynn Resorts (WYNN) because if I’m betting on gaming, I’m going with the legend, Steve Wynn. The business itself is sound, but there’s something to be said specifically about transcendent CEOs. Meanwhile, General Electric (GE) is required, too, for its impeccable track record and brand name and dividend. I could easily grab every oil stock, but I’ll restrict myself to the powerhouse, Exxon Mobil. Finally, I’m adding United Parcel Service (UPS), which is a massive brand already, but still stands to expand its tentacles across various parts of the world.
The other benefit to choosing these companies is that these are stocks I can tuck away in my portfolio and not have to spend a lot of time watching. Barring some great disaster befalling some of them, I can sleep at night.
And that’s a sound investment in and of itself.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned securities. He is president of PDL Broker, Inc., which brokers financing, strategic investments and distressed asset purchases between private equity firms and businesses. He also has written two books and blogs about public policy, journalistic integrity, popular culture, and world affairs. Contact him at firstname.lastname@example.org and follow his tweets @ichabodscranium.