Constructing a Portfolio

[Triathlete]

Hi All,
I thought we may get a discussion going on the best way to construct a portfolio and which stocks are suitable for different styles of portfolios.

In my own experience in what I have learnt and read over the years I would start by saying that regardless of whether you are looking for growth or income, you will need to select good quality stocks for your portfolio.

Identify the Goal of your Portfolio:

The stocks we select for a SMSF portfolio will be different to the stocks we select for a growth portfolio.
This is an important point as I have seen portfolios constructed with the wrong type of stocks .....what I mean is they were not bad stocks just that they were not suited to the goal of the portfolio.

Develop a list of stocks to suit the Goal of your Portfolio:

Start with the ASX Top 150.

The goal of your portfolio will determine the amount of risk associated with it and therefore the amount of research you will need to undertake to select the most appropriate stocks.

Once you have a selection of stocks for your own portfolio goal we can begin to construct the portfolio.

Below is a general list of portfolio styles that I base my own portfolios on which may help those that may be new to portfolio construction.

Superannuation portfolio:

Initially construct using the Top 20 ASX.

Once you develop more experience you can include stocks in the top 50 to 100 using a 60/40 split.

Blue Chip Portfolio:

A balanced approach between growth and income suited for people who have a low tolerance to risk.

Constructed from the Top 50 ASX.

Once you develop more experience you could include top 50 out to 150 even 200 using a 60/40 split.

Growth Portfolio:

This portfolio is suited for those who are more risk tolerant and willing to spend more time getting a better return on their investments.

Investor:

Top 50 will make up 60% of the portfolio.
Top 51 - 100 will be 40% of the portfolio.

Trader:

More aggressive portfolio

Top 50 will make up 20% of the portfolio
Top 51 - 100 will be 60% of the portfolio
Top 100 - 200 will be 20% of the portfolio.

This portfolio is more concerned with higher growth so many trades will be short to medium term over three to nine months.

Mid-Cap Portfolio:

This type of portfolio needs to be actively managed so you will need to spend a number of hours a week to manage this portfolio. With this type of portfolio trades can move fast but the returns can be greater than 30% in short periods but also a higher percentage of losses as well.

Investor:

No more than 10% stocks outside the Top 150 ASX at any one time.

Top 51 - 100 will be 60% of your portfolio.
Top 100 - 150 will be 40% of your portfolio.

Trader:

As a trader that has a good level of experience in trading outside the top150
you can set your weightings as below.

Top 50.................. will be 10% of your portfolio.
Top 51-100........... will be 60% of your portfolio.
Outside the top 100 will be 30% of your portfolio

These portfolios and their weighting are just a general idea and what helped me get started in portfolio construction with my own portfolios and depending on peoples experience will change the weightings to suit.

Hope this post helps someone.

 

[tech/a]

How have you come to the opinion that this is a good mix?
It appears logical but really its just a suggested universe that anyone could construct.
It would more than likely mirror the index.
Not knocking your effort.

How would you pick stocks from within.
What would be your next step and how would you
try to out perform the index---I presume that's what you want to do?
regardless which box of investing you choose to put it.

 

[Triathlete]

How have you come to the opinion that this is a good mix?
It appears logical but really its just a suggested universe that anyone could construct.
It would more than likely mirror the index.
Not knocking your effort.

How would you pick stocks from within.
What would be your next step and how would you
try to out perform the index---I presume that's what you want to do?
regardless which box of investing you choose to put it.

Thanks Tech/A for your reply.
As you know I have been doing some courses and this is just an example of portfolio construction that I had learnt.The reason for putting it up was I noticed some ASF members had mentioned stocks that were in SMSF portfolio which I believed wer too volatile for that portfolio and were better suited to a growth or midcap portfolio
Of course depending on your experience you can manage any type of stock and situation but for the newbies you may have provided a starting point.

As for me I start with fundamentally sound companies which I actually subscibe to a paid service...stock doctor... as I do not have the time to read reports etc.
I then start my technical analysis starting with the monthly chart first before moving to my weekly charts for my buy and sell entry points.
I usually look for medium term trades 3 to 12 months presently
I have had success trading this way over the past 9 months and have seen 39%return includes dividends in my portfolio.Whether this continues only time will tell.
ANN, CBA ,and TLS have been the stocks I have traded but out of all presently waiting on new entry points.

 

[scub]

Thank you Triathlete for your analysis of portfolio styles .

i am new to investing , 2 years in fact , and I am still trying to find my best fit investment style.
To be honest 2 years is an exaggeration as I could not get my head around the implications of world of QE and near zero interest rates and an historically overvalued AUD.
So most of my time has been spent in USD waiting for every thing to get back to normal ( still waiting ), not honing my skills . But I digress.

Can I add another low risk possibility for the raw beginner to consider (or someone who just wants a minimum time investment.)

Exchange traded Products :
there is in fact a US chatroom dedicated to the 3 bag portfolio : !/3 bonds 2/3 EFTS broad market 1/3 USA 1/3 Rest of world ( I would have thought they would have run out of things to say as a chat room but apparently not )

My original aspiration was similar: equal parts VHY VTS VAP ,a Global REIT ETF and enough cash ( AUD and/ or USD depending on exchange rates ) to live on for 2 years ( leaving enough money to learn my trade in investing with out risking my retirement )

The global asset bloat has stymied this but it remains my goal if the markets and the central banks ever decide to cooperate.

The other possibility when constructing portfolios is an onion skin approach a core portfolio that meets financial needs of retirement followed by outer layers aimed at building family wealth and finally layers that offer more challenge and fun It all depends on how many layers you can afford

Please bear in mind that I present these suggestions from extensive reading not experience and would appreciate any constructive feed back

By the way I love stock doctor so far , my partner whose mother has left a sprawling portfolio for her to manage was able to get on top of it in 2 hours.

Thanks once again
Scud

 

[Triathlete]

Thank you Triathlete for your analysis of portfolio styles .

i am new to investing , 2 years in fact , and I am still trying to find my best fit investment style.
To be honest 2 years is an exaggeration as I could not get my head around the implications of world of QE and near zero interest rates and an historically overvalued AUD.
So most of my time has been spent in USD waiting for every thing to get back to normal ( still waiting ), not honing my skills . But I digress.

Can I add another low risk possibility for the raw beginner to consider (or someone who just wants a minimum time investment.)

Exchange traded Products :
there is in fact a US chatroom dedicated to the 3 bag portfolio : !/3 bonds 2/3 EFTS broad market 1/3 USA 1/3 Rest of world ( I would have thought they would have run out of things to say as a chat room but apparently not )

My original aspiration was similar: equal parts VHY VTS VAP ,a Global REIT ETF and enough cash ( AUD and/ or USD depending on exchange rates ) to live on for 2 years ( leaving enough money to learn my trade in investing with out risking my retirement )

The global asset bloat has stymied this but it remains my goal if the markets and the central banks ever decide to cooperate.

The other possibility when constructing portfolios is an onion skin approach a core portfolio that meets financial needs of retirement followed by outer layers aimed at building family wealth and finally layers that offer more challenge and fun It all depends on how many layers you can afford

Please bear in mind that I present these suggestions from extensive reading not experience and would appreciate any constructive feed back

By the way I love stock doctor so far , my partner whose mother has left a sprawling portfolio for her to manage was able to get on top of it in 2 hours.

Thanks once again
Scud

Thanks for your comments scud...I have not had experience with ETF products so cannot comment.
Although the way you have explained your situation sounds like a plan without spending too much time managing your own portfolio.

Any share investment that I consider will always be backed up the technicals before I will put down my hard earned... it is just the way I do it and works for me and I want the market behind my selection before investing or trading.
As I get closer toward my end goal I too use the 30% property,30% corporate bonds,30% stocks and 10% cash. I expect the property and bonds to supply me with the income I need.

One thing I would ask with the ETF products are they actively managed? I mean if not what would be your exit strategy be if we had another GFC would the capital continue to be eroded or would you or whoever manages the products exit the position ? then wait until the bottom before re-entering the position?

I have rule with my own stock selections that if a position falls more than 15% then I will exit regardless as my analysis is obviously wrong...( not often though).

Just something to think about.

Cheers Triathlete

 

[divs4ever]

The 60:40 portfolio ... if no longer appropriate, then what is?​

The 60:40 portfolio ... if no longer appropriate, then what is?

The traditional 60/40 portfolio might deliver only 1.5% above inflation in future without diversification benefits. Knowing an asset’s attributes rather than arbitrary definitions is better for investors.

www.firstlinks.com.au

DYOR

i create my own path , that doesn't mean i ignore what others do , just that i might only use a small part of their strategy