'Tis the season of giving but let's be real...
It is also the season for asking. Filling out that wish list of all the goodies you’ve been wanting all year but haven’t pulled the trigger on yet. Those items might include small stocking-stuffer type items that you find on Etsy as well as the bigger presents such as a new Apple Watch or iPad. Sure the big-ticket items might get all the glory but it's the little stuff that really adds to the whole Christmas morning experience opening presents with those closest to you.
And with no better segue in mind, let's get to how building out your holiday wish list can be similar to building out an investment portfolio.
After all, what's more festive and joyful than building out an intricate financial plan?
Pretty much anything. So let’s make this a bit more simple and show how having a varied wish list with blue chip presents like iPads along with stocking stuffers makes for a better experience than just having all one or the other.
It’s time for the 2022 Stockmas Wishlist.
The Meat and Potatoes
As enjoyable as smaller gifts are, the biggest attention gets placed on the giant box at the front of the Christmas tree. The gift that you are most excited to open up and will likely be the most useful or at least the on you spend the most time with. The box might be literally big and contain a bicycle or it might be monetarily large and end up being the latest and most powerful smartphone.
Similarly, an investment portfolio will have a large portion of its assets built towards a specific goal and is generally made up of blue-chip stocks. Investors looking for more growth potential might have a higher allocation in tech stocks while traders focused on income might have higher dividend stocks in the financial or energy sector. The stocks change depending on the goal but the meat and potatoes of the portfolio often remain consistent performers with a large market share.
Investors should look to reap the benefits of diversification so to minimize risk. So growth-focused traders don’t have all their money in Apple (AAPL) but also some in Nvidia (NVDA), Amazon (AMZN), Oracle (ORCL), Nike (NKE), and others so that one bad company or even industry doesn’t bring down the whole portfolio. Meanwhile, income investors might spread their assets among JPMorgan (JPM), Johnson & Johnson (JNJ), Exxon (XOM), and Coca-Cola (KO) among many others. These investments might not be the most exciting or risky, but they are the building blocks of any portfolio and should be companies you believe in and have been proven performers.
The Mid-Size Packages
Okay the big presents are taken care of but that doesn’t mean we just go right down to the tiniest stocking stuffers. The king size candy bar has been opened but it's not quite time for Reese’s Pieces yet.
After the blue chippers have laid the foundation of the stock portfolio the mid-cap investments come next that are slightly smaller companies that have been growing and offer more growth opportunities but carry with them more risk. For growth investors that might include companies such as Salesforce (CRM), Micron Technology (MU), Chipotle (CMG), and Airbnb (ABNB). Meanwhile, higher dividend stocks in this category include REITs such as Prologis (PLD) and Crown Castle (CCI) along with other income stocks including Altria Group (MO), Unilever (UL), Morgan Stanley (MS), and Enterprise Products (EPD). These stocks are slightly smaller than the big blue chip stocks but remain pretty large companies that contain significant market share in their respective industries but are looking to grow further or return more of their profits back to investors.
Stuffing Time!
Okay finally down to the Reese’s Pieces with investments that can range from decently risky but with strong bullish signals down to pure speculative gambling for the fun of it.
Cryptocurrency is somewhere on this scale depending on the investor but should likely remain a smaller part of your portfolio given its extremely risky nature regardless of how much you believe Bitcoin and Ethereum are going to the moon. Additionally, any investment into a special-purpose acquisition company (SPAC) should be contained to a small subsection of an entire portfolio based on the nature of those “companies”.
This might be a good time to remind that this is a Stockmas Wishlist on how to build a varied portfolio and is not investment advice for those looking to put their Christmas bonus entirely into a random EV manufacturer or crypto project. For those with that plan, I hope it works out but this article is not for you.
Anyway back to smaller investments.
Whether it's crypto, SPACs, or EVs the point of this portion of the portfolio is for the more risky investments that you do actually believe have some serious growth opportunities. Sure you can pick out a random penny stock and have fun with it, but could also notice a growing tech company that offers a unique product or service and choose to bet on that firm with a small portion of your total assets. This smaller section should be for more fun and risky investments but that doesn’t equate to them being completely random and risky just for the sake of it.
Wrapping Up
At the end of the day the presents under the tree are a fun experience but it shouldn’t be taken too seriously. It’s cheesy but the holiday season isn’t just about the gifts but about those you open them with. An investment portfolio might seem like an extremely daunting and serious task but it doesn’t have to be. Building out a financial plan is important but doesn’t require constantly looking at a Bloomberg Terminal. The financial plan isn’t about the exact allocation of investments but about what and who you use the money for. So have a plan in place but make sure it doesn’t get in the way of what matters. Happy Holidays!
