Putting together a diversified portfolio is critical to long-term retirement investing. Everyone knows this. But let’s face it: It takes a lot of time to research investments, and we all need a sanity check before we jump in with actual money.
CNBC”s Jim Cramer provides a bit of help for investors by offering up five investment flavors you should have in your portfolio: growth, high-yield, foreign stocks, a speculative stock and gold.
I certainly like his thinking — although it’s a bit narrow given some missing pieces, such as bonds — and I have some suggestions and advice for each of Cramer’s investment categories.
Of course, Cramer isn’t necessarily advocating his investment mix for retirement purposes, but I believe investment advice and action is always a part of retirement planning, so let’s go ahead and give this a whirl.
Cramer advocates looking for the rate of growth in this category, using Amazon (AMZN) and Netflix (NFLX) as the examples. And they’ve got growth in spades — NFLX has grown revenues 116% since 2009, while AMZN is up 150% in that period. But both are still working on solidifying and growing the bottom line of the equation. Growth is great, but profitability is even better.
I like Google (GOOG) as a growth stock; revenues have grown 114% and net income 65% over the same period. Google is in virtually every arena available — across mobile, cloud computing, devices, and of course search — and the company shows no sign of slowing down its reach and capabilities. Its size ($50 billion revenue in fiscal 2012) might cause concerns over future growth, but the market has a price-to-earnings ratio of 32 on the stock, so it believes there’s future growth available for investors. So do I.
Cramer wants you to own big high-yielding stocks, and so do I … with some caveats. Understand what “high-yield” means and what to avoid. Pitney Bowes (PBI) yields nearly 5% today; do you want to own it for the yield? Probably not. You can get that same 5% with AT&T (T) and Shell (RDS.A) with a lot less worry about future dividend growth, while an investment in Intel (INTC) will get you close to 4% yield, again with some future comfort.
It’s a global economy, and Cramer wants you to keep it simple with investments in China- or Japan-based companies or ETFs. I would prefer to own a stock rather than a country, one with which I have some familiarity.
Jeff Reeves recently called out an opportunity to invest in Europe, citing Germany’s Daimler (DDAIF) as one company seeing growth. Daimler’s a nice place to start: It has a 4% dividend yield, and at a P/E of just over 8x, you certainly won’t feel as if you’ve overpaid. As for familiarity, you can’t watch any sporting event without seeing their commercials.
If you want to own a country instead, Alyssa Oursler points out in “The 5 Best ETFs in the World” four countries with soaring opportunities (the fifth is the good ol’ U.S. of A.).
Again, another category that I like with a caveat — understand your time horizon. You certainly don’t want to tie up money with a long-term play if you need it in a shorter time span. There’s no time limit on the speculation, just on your need for the money.
Some long-term suggestions?
Well earlier this year I put money to work at a rebounding Yahoo (YHOO), looking for a turnaround that is still in the making; I have a target price as opposed to date at which to sell, so I keep a close watch on its movement.
How about electric-car maker Tesla (TSLA)? It’s shot up over 300% year-to-date so you might be concerned, but a play on this name is all about the future of alternative vehicles in the U.S. — a potential long-term bonanza.
Gold is generally viewed as the long-term hedge against … well, just about everything. But the precious metal has not had a good time of it lately. The SPDR Gold Trust (GLD) is down 20% over the past year, and the gold miners themselves (as proxied by the Market Vectors Gold Miners ETF (GDX)) is faring even worse, down over 40% in the last year.
Truthfully? Unless you have some money to put into metals for a very long time, it’s an area I find a little disquieting … and will avoid.
So there we have it. I like four out of the five categories in which Cramer suggests investment. I’m with him on the need for diversification across asset classes, and I like where he’s going with stocks — four out of five categories — as the lead dog. My advice: Use the guide as a template, dig into some of your favorite ideas, and start building that portfolio.
Marc Bastow is an Assistant Editor at InvestorPlace.com. As of this writing he is long YHOO.
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