How I built my portfolio from scratch
General Advice Warning: This article is one person’s experience of creating her own personal portfolio. Her investment choices may not be appropriate for you and in no way reflect personal advice; you should ensure that any investments you consider are appropriate to your needs and circumstances.
In September this year I had a revelation that I’m just going to buy one stock a month. Not with a saved or inherited fortune, just with what I’ve saved in a month. I’m sick of frittering money, or ‘saving’ money for a bit of time just for it to be spent on something that seemed essential a short time later. I actually want to plan for my future.
I’ve started a blog that documents my journey. In this article I want to take you through how I got started and what I’ve been buying.
I got thinking, where would I be now if every month, or once every few months in the last ten years I’d scraped some money together and bought a parcel of shares? I’d be a lot better off than I am now. You know where I’m going with this, but I’m looking at my super balance and I’m thinking how on earth do I ever retire?
Even this wasn’t enough to get me motivated.
The chart that really kicked me into action was the performance of the ASX 200 index over the past 10 years. My main inhibitor has been timing; surely I’d invest just before the market fell and lose all my money. We definitely live in uncertain times. But this chart shows that the stock market generally goes up. It does drop every now and again and it’s not a straight run, but overall, it goes up on average over time. At the end of last year the market was full off fear, everyone was selling their shares, but actually it was a very good time to buy. Look at the GFC some 10 years ago where people lost a lot of money; the share market has powered ahead since then.
With interest rates so low, any money in the bank is losing its value as it’s not even keeping up with inflation. It’s really time to take action. I literally cannot afford not to.
How much money should I invest and how much do I put into each stock?
At Under the Radar Report we get asked all the time, how much do I need to invest, or I’ve got $100,000 to invest in the share market– which shares do I buy? But what if you don’t have any spare cash to hand?
My revelation is to slowly build up a solid share portfolio just one share at a time using what I’ve saved each month.
What is my back of the envelope strategy?
I know from Under the Radar Report about the basic share portfolio set up: 50% in Blue Chips (I’m going for about 10 stocks) 25-30% in Small Caps for growth (and I know I need to diversify and buy 7-10 stocks) and 20-25% in cash.
We all know that our super funds are invested in Blue Chips. I can just buy a LIC like AFI, MLT or ARG which are all listed on the share market, or an ETF like Vanguard I want to actually own the individual shares. I want to see the growth of individual companies. I also want some dividends for income or to reinvest them for compound growth.
Each month I plan to invest about $2,500 in either a Blue Chip or a Small Cap stock. This might seem like peanuts for some and a lot for others. I’m just investing what I’ve got.
I wanted to buy a Blue Chip share first because these are established businesses and to start with I want more security and less risk.
Which share should I buy?
Well, that is the killer question isn’t it? There are over 2,000 shares listed on the ASX. Which company deserves my precious money?
Experts spend thousands of hours working on this. I am not skilled in company analysis or technical analysis but I can access independent share research and I have my brain.
I used our Blue Chip Value report and looked at the list of 14 Blue Chips that we had a buy recommendation on. I chose a stock that our table showed had big share price growth potential plus it is forecast to pay a strong dividend yield of 7.6%. It took me about 5 minutes to choose. You have to trust someone and I am trusting our independent analysts. I picked the aluminium producer Alumina (ASX code AWC) - it was around $2.25 and I hit buy. It was actually pretty easy and two days later I saw the share price go up and I was in the black and I’m the proud share owner of a business.
Buying my first small cap from Under the Radar Report’s best buys
Investing takes courage. I was nervous. On my way to work I bought a nice coffee which I promptly spilt all over me and I had to go home and get changed. I’ve certainly never done that before, but I’m glad I did!
It gave me a chance to sit at home and look at our list of six small caps on our “Best Stocks To Buy” list. These are the companies that our analysts believe offer the best risk/return now. The average return of our Best Buys over the past eight years is above 60% per recommendation.
It took me about 5 minutes to read about these small caps and now that I have the intention to buy shares, it was like a great shopping experience with all the thrill of anticipation. I can see that once I get over being nervous (and maybe this is just me, and you will be as cool as a cucumber), buying shares is going to be quite exciting.
There were three that really took my interest. I ruled two out quite quickly - one was in sports technology (yawn yawn), one in media (I'm in publishing and I'm over exposed and don't need more analysts/journalists in my life), one was a contractor (building in the major capitals - was probably sensible but I'm not addicted to property) so I was left with three of interest.
A diversified portfolio - look at different industries
One is a data centre operator (boring, but demand is always going to be strong isn't it), a little miner (I feel guilty about the earth but my capitalist bones spark interest), and a medical device specialist – could this be the next big thing?
Level of risk - knowing your own risk profile when buying shares
We have two levels of Buy - Buy and Speculative Buy. Spec Buy means it is riskier, but there are often more rewards. But you can lose out with spec stocks too. It's taken me so long to get started buying shares that right now my risk profile is pretty low.
Macquarie Telecom (MAQ:ASX)
I bought 110 MAQ shares which cost essentially $2,500 (give or take a few dollars). They aren't 'cheap' shares at $22.75 each. But this is a very stable business, it's been listed for nearly 20 years, they have long-term contracts, the shares are predominantly owned by two brothers who run the business, and it's performed well long-term.
They have paid dividends in the past, they are very likely to again, they have strong growth prospects and it's an established business. Even if there is a dip in the share price for a bit, I think this is a good long-term investment.
Panoramic Resources (PAN:ASX)
I also bought Panoramic Resources (PAN). This is a spec buy, yes it's speculative! It's a little miner and it is producing. I know this is risky and that I’m not listening to lesson 101 about diversification but I'm Australian and we know Australia's wealth is from mining (poor sheep are struggling these days) and I want to see if a little miner can strike gold! (well nickel, copper and cobalt to be precise).
I'm just having some fun with this so I'm being cautious and I put in $1000. If it doesn’t work out, I haven’t invested everything but if it goes up well that is excellent.
How I’m performing: so far, so good
There you have it. I now have one Blue Chip share, a reliable small cap share and a more speculative small cap.
I've been brave. Alumina have gone up nearly 5%, MAQ has dipped slightly and I’m down $27 but Pan is also up and overall I’m in the black.
I’ve got a plan. I’ve started my investment journey and I’m genuinely excited about the next stock I’m going to buy.
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