Starting fresh with a portfolio can be exhilarating yet intimidating in your investment journey.
You possess a considerable amount of money and wish to make knowledgeable choices regarding it. You’re drawn to dividend growth investing due to its reliable income, potential for long-term appreciation, and stability derived from investing in quality companies.
Nevertheless, many questions emerge promptly.
How many stocks should you hold? Which sectors are essential? Should you invest at once or do it gradually? How do you assess a stock without feeling overwhelmed?
Brad, a member of Dividend Stocks Rock PRO, recently raised these inquiries with me. Although Brad had a wealth of knowledge from years spent reading financial blogs and grasping dividend investing theory, he found himself unsure about how to put his portfolio together.
“I have a clear vision of where I want to arrive,” he mentioned. “But I’m unsure about how to achieve it.”
That conversation inspired me to develop a thorough guide titled The DSR Investment Roadmap. In this article, I will highlight crucial aspects from the guide to assist you in getting started on the right foot. For the complete document with additional examples and resources, you may download it for free below.
Before plunging into stocks or finances, it’s vital to create a clear framework. Ground rules establish structure, transparency, and consistency in constructing and managing your portfolio. Here’s what I suggest clarifying in advance:
What Is Your Investment Philosophy?
Are you pursuing total return, steady income, capital preservation, or a mix? This will influence all your choices. My strategy is 100% equity, fully invested, split roughly between Canadian and U.S. stocks for global exposure, sector diversity, and long-term growth opportunity.
What Is Your Time Horizon?
Consider the long term. My outlook extends over 50 years—even into my 90s. This perspective aids in weathering market fluctuations since my investments are not short-lived but are meant for the next generation.
How Many Stocks Will You Oversee?
There isn’t a definitive number, but your capacity is significant. Managing 20–40 positions usually strikes a balance between diversification and focus. Fewer positions increase risk; more can lead to losing track.
What Is Your Target Position Size?
Once you determine the number of stocks, split 100% by that amount for your ideal allocation per stock. For 35 positions, it’s approximately 3%. If a stock dips below 1%, consider whether you would reinvest in it. If not, think about selling.
Which Sectors Do You Understand?
You don’t need exposure to all 11 sectors. Concentrate on five or six where you grasp the business models, such as finance, technology, and industrials for me. Begin with confidence and diversify gradually.
Once your ground rules are set, engage with the data. Many DIY investors become distracted by an excess of metrics and financial statements.
You don’t need 20 filters. I utilize three.
I seek companies with:
– A minimum of 1% revenue growth over the past 5 years
– A minimum of 1% earnings-per-share (EPS) growth over the past 5 years
– A minimum of 1% dividend growth over the past 5 years
That’s all. Why is it so uncomplicated?
I seek businesses that are advancing positively. These metrics constitute the dividend triangle: revenue, earnings, dividends. All increasing indicates a well-managed, sustainable business.
These filters narrow your list to a few hundred stocks. Further refine by sector. Focus on sectors you comprehend or wish to gain more exposure to. Avoid sectors where you have heavy investments already or lack confidence in analyzing. You do not need to cover all 11 market sectors. Five or six are sufficient for a diverse and resilient portfolio.
Even after filtering, you will have several candidates. Analyze individual companies without succumbing to “paralysis by analysis.”
Often, investors believe they require advanced accounting skills or years of analyzing 10-K filings to make a decision. This isn’t practical or needed.
I start with a simple question: Can you explain the company’s business model to a 12-year-old?
If you cannot clearly articulate how a company generates its income and maintains a competitive advantage, it may not be the right investment. You don’t need every detail, but you must have clarity.
Once comfortable with the business model, reevaluate the dividend triangle. Are revenue, earnings, and dividends increasing? A robust triangle indicates a company with healthy margins and the discipline to return capital to shareholders.
Next, evaluate growth drivers, risks, and dividend safety (can it increase payouts during challenging times?).
Lastly, assess valuation to prevent overpayment for inflated expectations. Use tools such as dividend yield history, Refinitiv value score, and P/E ratio averages for guidance.
This article lays a solid foundation. The full DSR Investment Roadmap elaborates further on these topics.
Inside, you will discover:
– A detailed methodology to filter and compare stocks within each sector
– Resources to build and test a mock portfolio before committing real funds
– Advice on deciding how and when to allocate your capital
– Tips on reviewing your portfolio and remaining invested with assurance
If you’re prepared to transition from uncertainty to