An Idea On How You Can Structure Your Portfolio

Having a well-planned portfolio is important for any investor. As the American author H. Stanely Judd once wrote: “A good plan is like a road map: it shows the final destination and usually the best way to get there”

What I have below is one way investors can structure their stock portfolio. It’s important to keep in mind that there’s no definitive “right” or “wrong” answer when it comes to how an investor’s stock portfolio is structured.

Building a portfolio

An investor can have three cateogries of stocks in his or her portfolio. These categories are named as Core, Supportive, and Speculative.

Core stocks are the ones that form the foundation of the portfolio. These should be large, established companies. They are stocks that can be relied upon for stable but unspectacular earnings growth (say, in the mid-to-high single digit percentage range) and consistent dividends.

The benefit of having such stocks in the portfolio is that they can pay out decent dividends even in tough times – these dividends can then be deployed to take advantage of any opportunities seen.

Next come the Supportive stocks, which are typically companies with medium-sized businesses. These are the companies with slightly higher growth potential than the Core stocks, say in the high single-digit to low-teens percentage range.

They may already be paying dividends currently (if they are, their yields will likely be lower than the Core stocks), or may have indicated an interest in paying a dividend in the middle-term future. Ultimately, they are companies that can deliver both capital appreciation and some dividend income.

Lastly, we come to the Speculative stocks. They are typically young companies with small businesses. While they hold the potential for big gains due to their small size, they are also a lot riskier than the Core and Supportive stocks. Investors need to have a long-term vision of the growth prospects of Speculative stocks and select them carefully.

A Foolish final though

In conclusion, what I have provided is merely a framework that investors can use to build their portfolios or categorise their current stocks. The percentage of each category that make up a portfolio can vary from investor to investor. But, the general idea is the weighting of each category should flow in the direction of (starting with the heaviest) Core to Supportive to Speculative.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.