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How To Build A Winning Stock Portfolio With $5,000

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If you want to know how to build a winning stock portfolio with only $5,000 (or with very little money) this article is for you. I will go over everything you need to know about how stocks work, the best stocks to buy and how to build a stock portfolio that will generate income and capital growth long into the future.

Believe it or not, the best stocks to buy are often the most boring stocks. You want to look for unloved, underappreciated companies with positive cash flow that pay dividends. Growth stocks may get all the attention but it’s the dividend payers that will make you rich.

Can stocks make you rich? They absolutely can but the high profit stocks you need to invest in aren’t so easy to find; if they were everybody would be a stock market mogul.  Read on to find out what makes a stock a good investment and how you can cash in on the secrets of the Wall Street elite.

This Is How Stocks Work In Your Portfolio

Stock is the backbone of modern investment portfolios. When you are young stock will make up the vast bulk of your investments, their return on equity will determine your income. The few cases in which this is not true include people who actively invest in real estate or other alternative investment choices but that is another story. For the rest of us, equity stock is the easy choice because of access and price. The stock market is vast, it can be accessed online through web-based brokerages and most are less than $100 per share.

How stocks work is simple. Stock gives you an equity ownership in a business. Each share of stock entitles you to an equal portion of company earnings, an equal voice in company doings and an equal claim on company assets whatever they may be.

There are two ways to profit from owning stock, we recommend using a blend of the two. The first method is called capital appreciation. Capital appreciation is when you buy a stock and then sell it at a higher price,  and is by far the harder method of investing. The second method is dividends. Dividends are the payments you receive for owning a stock, the catch is that not all stock pays dividends the same way they won’t all see capital gains.

You Need To Know What An Asset Is

If you want to build a winning stock portfolio you need to understand the difference between investment and speculation and that means understanding the true meaning of the word asset. While most securities are referred to as assets there are many that do not meet the true definition of the word. In the investment world, assets are tangible investments from which the owner can expect to see a return based solely on their invested capital. All gains are due to the work of a third party.

Assets include stocks that pay dividends, bonds that pay yield and real estate that earns rents. Assets may also include business (stock) that do not pay a dividend if there is an expectation of capital growth. If the company is actively growing or has plans for growth an investor can assume the company and its stock will be worth more tomorrow than it is today. Stock in companies that do not pay dividends and are not growing do not qualify as assets as there is no expectation of return.

Investors are interested in making and growing money over the long-term; this means collecting dividends, earning yields and capital appreciation. Speculators are interested in making money over the short-term. This means cashing in on short-term price movements within the market by day-trading or swing trading.

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Why do stocks fluctuate? Stock prices fluctuate because the true value of the underlying company is always uncertain. Sometimes the market is more certain of the company’s value, at those times the stock price may move less. At other times the market may be less certain of the company’s value, when that happens the stock’s price can move up and down randomly and/or sharply.

In some cases the stock will sustain a rally, a period of continually rising prices, finding those stocks before the rally begins is a great way to make money. Regardless, stock prices fluctuate every day and can create highly profitable opportunities. These opportunities may occur with investable stock assets or not, it just depends on the situation.

Why stocks fluctuate is a question asked by trades and investors every day.  Stock prices fluctuate because of emotion, emotion, in this case, means fear and greed. Speculators are trading stocks based on extremes in prices that have been driven by fear or greed. An investor can take advantage of those extremes so long as they understand what they are buying, and don’t mistake a speculation for an investment.

Diversification And Allocation For Your Winning Stock Portfolio

Diversification is very important for a winning stock portfolio, you don’t want to put all your eggs in one basket. Diversification can be achieved in many ways but always comes down to choosing stocks from different industries and sectors in order to protect your capital from unexpected losses. The idea is that not all stocks move at the same time and that is proved time and time again.

The most basic diversification is between cyclical and non-cyclical stocks. Cyclical stocks are those that do well only when the economy is doing well and include companies like automakers, retailers and home builders. Non-cyclical stocks are those that tend to do well regardless of economic conditions and include companies like defense contractors, sin-stocks (cigarettes, gambling, and alcohol, among others), and consumer staples. The idea is to build the foundation of your portfolio with both non-cyclical and cyclical stocks and then add or trim to those positions as economic conditions change.

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Allocation is a term referring to how much of your portfolio is given to any one stock or sector. A basic allocation may be 40% non-cyclicals and another 20-40% of cyclicals depending on conditions. Now, from time to time, you may have to reallocate your portfolio. If one of your investments is doing particularly well it may grow to a size that offsets your allocation. If this happens don’t fret, it’s a good thing, you can now sell enough of the over-allocated asset to bring your portfolio into alignment and use those profits to reinvest in a new or otherwise under-allocated asset.

The caveat with diversification and allocation is that it can be a two-edged sword. Each time you buy or sell a stock it will cost you a commission. If you are trying to build a winning stock portfolio with $5000 or other small sums you will want to take this into consideration before devising your strategy. It may be better to start with only one or two carefully chosen stock positions and make your purchases at certain times. As these positions grow and deliver income you can use the proceeds to build new positions.

This Is An Easy Approach To Diversification 

You can achieve an easy sector level diversification by using indices (indexes). Indices are groups of stocks that represent a certain sector, business type or other groups within the broader stock market. The number one index worldwide is the S&P 500. It is a list of the 500 leading companies within the U.S and maintained by Standard & Poors. A single investment in this index through ETF gives you instant diversification across the entire US stock market in one go, but it shouldn’t be your only investment.

As a broad index, the S&P 500 only achieves average returns (capital gains and dividends) when compared to the sectors and sub-sectors that comprise it. An investment in the S&P 500 can be a core investment, it can be the foundation of your portfolio, but it should be a starting point for investments in other sectors. To make diversification easy there are entire families of ETF products designed to mimic the S&P 500 and all of its subcomponents.

The most popular family of ETFs is the Standard & Poor’s Depository Receipts or SPDR’s. The SPDR’s are a passively managed exchange-traded fund that mimics exactly the prices of the major US indices and the eleven sub-sectors within the S&P 500. The primary fund is the SPY which tracks the S&P 500 and is the largest, most heavily traded ETF in the world.

  • XLC – The XLC is an ETF tracking the U.S. Communications Services sector. Communication services may sound boring but it includes all the big Internet, broadcasting and media companies. Top holdings are Facebook, Google, Disney, Charter, and Netflix. This is a neutral sector regarding cyclicality, some businesses like Verizon will perform the same in good times or bad while Media companies like Netflix may fall into the discretionary category.
  • XLY – The XLY is the Consumer Discretionary Sector SPDR and tracks businesses that sell products people like but don’t have to have. Top holdings include Amazon, Home Depot, McDonald’s, Nike, and Lowe’s. This is a cyclical sector that performs better when consumer confidence is high and personal income is on the rise.
  • XLP – The XLP is the Consumer Staples Sector SPDR. It tracks business that sells products people need and use regardless of business conditions. The top five holdings here are Proctor & Gamble, Coca-Cola, Pepsico, Walmart, and PhillipMorris. This sector is non-cyclical and sometimes even counter-cyclical which means it could move up while the broader market moves lower.
  • XLE – The XLE is the Energy Sector SPDR and tracks the US largest oil companies. Its top holdings are dominated by integrated oil companies like Exxon, Chevron, and ConocoPhillips but are rounded out by oilfield services companies like Occidental Petroleum and Schlumberger. This is a cyclical sector because revenue for the sector is based on oil and oil demand is driven by economic conditions.
  • XLF – The XLF is the Financial Sector SPDR tracking financial institutions and investment banks. The top holding is Berkshire Hathaway, a holding company which owns banks and insurance companies among others, but that is followed by JP Morgan, Bank of America, Wells Fargo and Citigroup. The financial sector is a cyclical sector.
  • XLV – The XLV is the Health Care Sector SPDR focused on consumer products, pharmacy,  healthcare equipment, and care. Its top holding includes Johnson & Johnson, Pfizer, United Health, Merck & Company, and AbbVie. This sector is non-cyclical because people require health care all the time and seldom skimp on things like toothpaste and mouthwash.  
  • XLI – The XLI is the Industrial Sector SPDR and should not be confused with the blue-chip Dow Jones Industrial Average. The XLI is comprised of stocks operating in American industry like Boeing, 3M, Honeywell, Union Pacific, and United Technologies while the blue-chip index is the 30 largest businesses in the US. The XLI is a cyclical sector and can be expected to underperform when economic conditions are poor or deteriorating.
  • XLB – The XLB is the Materials Sector SPDR tracking companies that make the materials used in other industries. The top holding by far is Dow Dupont at 22% of the portfolio, the next four are Praxair, Ecolab, Sherwin-Williams, and Air Products And Chemicals. This is a cyclical sector.
  • XLRE – The XLRE is the Real Estate Sector SPDR and a spin-off from the financial sector. It tracks top US real estate companies ranging from management companies to lumber for home builders. The top five holdings are American Tower Corporation, Simon Property Group, Crown Castle International Corp, Prologis Inc, and Equinix Inc. It is a non-cyclical sector but may do better in good times than bad.
  • XLK – The XLK is the Technology Sector SPDR and focused on the top tech companies in the US. The top five holdings are Apple, Microsoft, Visa, Cisco Systems, and Intel. Visa may seem like an odd choice for this sector but remember that Visa is a payment processor and not a bank, even though it is systemically important to the financial system. This sector is also cyclical and will perform well when the economy is doing well.
  • XLU – The XLU is the Utilities Sector SPDR. It tracks utility companies delivering electricity, water and natural gas to US homes and businesses. The top holdings include NextEra Energy, Duke Energy Corporation, Dominion Energy, Southern Company, and Exelon. The utility sector is a non-cyclical sector that performs well in both good times and bad. It is also one of the highest yielding sectors regarding dividend and pillar of many dividend portfolios.

This Is When To Buy Cyclical And Non-Cyclical Stock

You could build your winning stock portfolio by dividing your $5,000 into eleven portions and buying equal amounts of all eleven S&P 500 sectors at the same time, but you won’t, because doing that would defeat the purpose of diversification. Buying all eleven sectors at the same time is the same thing as buying the entire the S&P 500 so your performance will never be better than the S&P 500. In order to maximize your returns in the most efficient way, you have to buy cyclicals and non-cyclicals when the timing is right.

This may seem counterintuitive but you want to buy non-cyclical stocks when the economy is doing well and cyclicals when it isn’t. The reason is simple; when the economy is doing well the vast majority of the market will be flocking to the cyclical stocks in search of return and by doing so will drive up the price. At the same time, the market will be selling the non-cyclicals in favor of cyclicals and driving down their price. This means you can buy the non-cyclicals at a discount and lock in higher yield on the dividends while you sell your positions in the cyclicals. Later, when the market turns it will be time to start selling your non-cyclicals in favor of cyclicals.

The ebb and flows of cyclicality are also important in regards to allocation within the portfolio, the amount of money allotted to each investment. When the non-cyclicals are outperforming the broader market it may be time to take some profits by selling a small portion of those holdings. Those profits can then be used to buy more cyclical stocks while they are underperforming.

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Picking The Best Stocks Can Boost Your Portfolio Returns

Picking individual stocks from within each sector can boost your portfolio returns but it can also hinder it. Aside from the risk of picking all the worst stocks in each sector, there is the chance of miss-diversifying your portfolio.

I know you’re thinking you could pick a good stock from each sector and have a better portfolio and you’re right. The problem, if you will refer back to the list above, is that you could very easily choose several tech stocks, or several consumer products stocks, that are technically in different sectors without working very hard.

The first two sector-ETFs on the list above, the Communications Sector SPDR and the Consumer Discretionary SPDR, contain four of the five FAANG stocks (Facebook, Amazon, Netflix, and Google) and neither represent the technology sector. They are all good stocks but if you were to pick them your portfolio would be a cross-section of the Internet Tech sector and not truly diversified.

When choosing individual stocks from within each sector build a watchlist of the ones you like. Research and compare them to make sure you aren’t doubling up on technology, or consumer products, and whittle the list down to four to six choices you can target for your core investments. They should be diversified by sector and cyclicality with as little overlap between them as possible. At that point, it will be time to make a plan for purchasing your first stock.

Three Basic Investment Strategies For Your Winning Stock Portfolio

There are three basic investment strategies for building a winning stock portfolio. These are the Dividend Income Strategy, the Growth Strategy, and the DIvidend Growth Strategy. While all three can produce satisfactory results we do recommend the Dividend Growth Strategy for several reasons. The most important is that you can’t always count on business growth, especially if economic conditions are adverse to it. When combined with good allocation the Dividend Growth Strategy reduces volatility and ensures steady income in all market conditions.

The Dividend Income Strategy For High Profit Stocks

The dividend strategy for high-profit stocks is as simple as it sounds. The objective is to buy dividend producing stocks that deliver a regular monthly income for your portfolio. Depending on where you are in life relative to your retirement there are several different routes you can take with your dividend income.

If you are young and planning an early retirement you will most likely want to reinvest your dividends in new stock. Reinvesting dividends means buying more shares of the same stock, or a different stock, in order to grow your portfolio’s base value. Most dividend investors think about their portfolios in terms of yield. Their goal is to grow the base value of the portfolio while maintaining or increasing their target yield; if a stock’s yield is too low they won’t touch it until the time is right.

Although the idea is simple, the reality of finding great dividend payers can be challenging. The best companies often yield below the market average because there is demand for their safety. A search for a high-yielding stock will come back with double-digit payers (10% yield or higher) but you have to be careful what you buy; all dividends and dividend payers are not the same, not all equities sold by stock exchanges are stock. There are a number of derivative investments sold like a stock whose sole purpose is to pay dividends but there are caveats to owning them.

The REITs, BDCs and MLPs all pay above-average yield relative to the S&p 500 and all come with complicated tax liability and the risk of equity erosion. Equity erosion is when a company pays its dividend from sources other than earnings and also known as Return of Capital. Return of capital or ROC may look like a dividend but in reality, the company has given some of your investment back, effectively decreasing its value.

Another reason to be wary of the highest yielding stocks in your search is that a very high yield can indicate bad news. The stock may have recently seen a major sell-off that has not yet resulted in a dividend cut (when a company lowers its dividend, not a great thing for investors), or it may be an unsustainable distribution intended to attract ownership.

Dividend health refers to a company’s ability to pay, or not pay, its dividend. Dividend health can be measured in different ways but free cash flow is one of the best. Free cash flow refers to the amount of revenue and earnings that are not tied up by operations or debt. If free cash flow is not enough to cover dividend distributions there is a chance the dividend will be cut in the future. If the free cash flow is ample enough to cover the distribution with excess there is a chance for a dividend increase at some point in the future.

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The best thing to do is look for the highest sustainable dividends that come from respected and established companies. The S&P 500 is the benchmark index for the broad US stock market and a useful proxy for establishing what a high dividend is. The S&P 500 tends to yield about 2.0% which means an average, established company in the US should be returning about 2% relative to their stock’s price. If you are able to find an asset that you like with a yield above 2% you’re doing pretty good, if you can find one you like that yields more than 4% you are doing great.

Dividend increases are the income investors best friend. Dividend increases mean two things; a bigger payment for you and capital appreciation for your portfolio. Dividends attract investors, dividend increases attract new investors and new investors mean higher prices for the stock. A company in a cycle of dividend increases can expect to see its share prices trend steadily higher because dividend stocks tend to trade relative to their yield. If a stock that trades with a 2% yield has the distribution increased to 3% you can expect to see the stocks price move up until the yield stabilizes near 2%.

The Dividend Aristocrats Are Stocks You Need To Know

The Dividend Aristocrats are a group of stocks from the S&P 500 with a history of dividend increases, a long history of dividend increases. To be a dividend aristocrat a stock must have increased its dividend for at least 25 years, many on the list have increased theirs for 40 years or more. The attraction of the aristocrats is an expectation the dividend will be increased again and again and again. The bonus is that the aristocrats represent all eleven S&P sectors which makes it possible to build a well-diversified portfolio from the dividend aristocrats list.

This Is A Simple Strategy For Picking Growth Stocks

Growth stocks are stock of businesses that are in their expansionary phase. These companies are actively expanding operations, taking market share, increasing revenues and growing their earnings. The idea behind a growth strategy is that you buy stock in a company while it is smaller in the hopes of selling it at a higher price later after it has grown.

The problem with growth stocks is that many of them are overvalued relative to current earnings because there is an expectation they will be worth more in the future than they are today. This means investors have to be very careful when choosing a growth stock and time their entries to take advantage of negative news events. By negative I mean an event that causes the stock price to sell off to a reasonable entry point. This may include an earnings report that is only as expected or other news that casts doubt on the future potential of the company without altering the company’s fundamental health.

The biggest gains regarding growth stocks come when you recognize a great company before it starts to grow. Everyone wants to spot the next Microsoft, Amazon or Netflix before they become famous but that’s very difficult to do. The easiest method, and perhaps best, for finding hot growth stocks is to follow the news. The best, most successful, growth stocks get lots of media attention because they are making their investors lots of money. You can make a list of these stocks, divide them into groups based on their sectors and business model, and when the one you like the best sells off on bad news swoop in to take advantage the low prices.

Another method is to use your investment platforms trading tools to filter the market for companies that are growing, profitable and producing positive results for their investors. These are the filters I use when searching for growth stocks:

1 – Market Cap Makes A Difference In Your Portfolio

The market cap or market capitalization is a measure of how large a company is. It is the share price of a stock multiplied by the number of shares outstanding and a good measure of risk, among other things. The idea is that a larger company is less risky because it is well established while a smaller company is riskier because it is not as established. A good rule of thumb is that stock with a market cap less than $400 million is risky, a stock with a market cap between $400 million and $4 billion is moderately risky, and a stock with a market cap over $4 billion is the least risky. When building a growth portfolio it is wise to diversify by market cap in order to enhance returns; growth of larger companies is more reliable but smaller compared to the high-risk explosive growth you may see with a small or micro-cap stock.

2- Sales Growth Drives Value For Your Portfolio

Sales growth or revenue growth is the driving factor behind a growth stocks success, it shows the company is expanding and that’s what you are looking for. The amount of revenue growth will depend on the size of the company, so long as it is positive you are in good shape. When looking at the revenue figures it is important to note if the increases are due to organic growth, growth from ongoing operations, or if it is due to an acquisition. Acquisitions are fine, many companies have produced stellar growth by assembling a portfolio of smaller companies under their umbrella, but you do want to see organic growth as well. Along with this, you want to see an expectation from the company for revenues to improve in the future usually delivered in the form of guidance (an estimate of future results) provided by the company itself.

3 – Historical Earnings Growth Can Lead To Future Growth

Businesses are valued in many ways but the most common and most important is their earnings. If you are looking to build a portfolio of growth stocks you want to be sure your candidates have a history of earnings growth. The idea is that a company with a history of earnings growth is more likely to produce earnings growth in the future, an object at rest tends to stay at rest while one in motion tends to stay in motion kind of thing. When filtering for growth stocks I like to see at least three years of growth if not five, and with a growth rate above certain thresholds. For the largest companies, over $4 billion in market cap, I like to see historical earnings growth greater than 5%. For a mid-cap company, one between $400 million and $4 billion in market cap, I like to see historical earnings growth above 7% and for the smallest companies, I like to see growth in excess of 12%.

4- The Expectation Of Earnings Growth Is What Drives Stock Value

While revenue growth and historical earnings growth are important in this search it is the expectation of future earnings growth that drives the value of a stock. If a company is expected to produce no or declining earnings growth in the future you can expect to see its price decline, if a company is expected to produce positive earnings growth in the future you can expect to see its price remain stable if not increase. Forward earnings expectations are usually provided along with a company’s guidance as well as by a community of stock market analysts.

The things savvy growth investors look for in the guidance are positive growth expectations, expanding growth expectations (the pace of growth is accelerating from quarter to quarter or year to year), the possibility a company will outperform its peers, and the chance a company will perform better than its own management and/or analysts expect. Websites like SeekingAlpha aggregate earnings reports, company issued guidance and analyst estimates in one easy to use location. I like to use it and the weekly Earnings Insight report produced by FactSet. The FactSet report is a top-down look at earnings expectations for the entire S&P 500 and its constituent sub-sectors. Investors can use it as a benchmark to gauge expectations for individual companies within the market.

5- Strong Profit Margins Mean More Than Great Earnings

Profit margins, the difference between what a company brings in as revenue and keeps as earnings, is a powerful measure of a company’s health. Business with strong margins are able to grow without debt, are able to sustain dividend payments, can repurchase shares, and otherwise drive value for their investors. A company that is able to grow revenue but not earnings is a red-flag for growth investors. It shows a company is growing but not able to control costs and is, therefore, a less attractive investment because margins are declining. A company that is able to control costs or improves them will be able to show positive gains in both EPS (earnings per share) and revenue growth. Margins are also important when comparing a growth stock candidate to its peers, a stock with higher margins is more attractive than with lower margins because it makes more money relative to its revenue.

6- Return On Equity

The return on equity or ROE is a measure of company profitability. ROE shows how much the company has been able to earn relative to the amount of shareholder equity or market cap and is calculated by dividing the net income (revenue minus expenses) by shareholder equity. While a higher ROE is more attractive than a lower the more important metric when searching for growth stock candidates is the comparison of current ROE to a three or five-year average ROE. A stable or increasing ROE is a good sign management is able to deliver returns to shareholders and efficiently grow the company. If current ROE is below the five-year average it is a red flag that profitability is in decline or decelerating.

7- Positive Stock Performance Is A Good Sign It’s A Growth Stock

The final phase of choosing a good growth stock is to look at the chart. If the market agrees with your assessment of a growth stock candidate it will be apparent in the chart. If the stock’s price is trending higher you can safely assume the market thinks the stock is a good choice too. If the stock is trending lower or sideways it may still be a good choice but the market hasn’t gotten interested in it yet.

The Dividend Growth Strategy For Market-Beating Performance

I’m sure by now you’ve got an idea why I think a dividend-growth strategy is the best way to go; dividends provide income and growth stocks provide capital gains. What you may not have considered is that a dividend stock with positive revenues, positive EPS growth outlook, and strong margins is a dividend stock with a high expectation of dividend increases.

As I’ve mentioned before, dividend increases are a powerful catalyst for a stock and can boost capital returns above and beyond what a mere growth stock may provide. Growth stocks do not always pay a dividend, especially if the management team is focused on rapid growth, but a high yielding dividend stock may easily fit into the mold of “growth stock”.

A dividend-growth portfolio could be built in a number of ways. One method may be to look at the Dividend Aristocrats and screen that list for the best growth candidates. Another may be to add a simple dividend requirement into your growth stock screener and see what you come up with. The only caveat I will mention is that in order to fulfill both requirements, dividends and growth, you may have to loosen your search criteria to get enough choices.

The Dogs Of The Dow Is A Time-Tested Strategy For High Profit Stocks

The Dogs Of The Dow is a time-tested strategy that assumes last year’s worst blue-chip stocks will be this year’s best investment. The blue-chips are the largest, most established businesses in America and listed on the Dow Jones Industrial Average. The Dog’s of the Dow are the highest yielding stocks in the Dow Jones Industrial Average and often the past year’s worst performing (which is why the yields are the highest). The strategy is simple, look for the ten highest yielding Dow stocks at the end of the calendar year and then invest in them equal amounts.

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The idea is that you will be buying these stocks at relatively cheap prices and when their dividend yields are the highest relative to stock price and the index. Aside from simplicity the strategy also boasts market-beating performance relative to the Dow Jones index. For those investing on a budget, there is also the Small Dog or Dow Puppies strategy. This strategy is the same as the Dogs strategy except that it is the five highest yielding Dow stocks instead of ten.

The 2018 Dogs of the Dow are Verizon, IBM, Pfizer, Exxon-Mobil, Chevron, Merck, Coca-Cola, Cisco, Proctor & Gamble, and General Electric. The average yield on these ten stocks is over 3.5% compared to only 2.5% for the entire index. The caveat when buying the Dogs or Puppies is that the yield is high because the stocks were underperformers or beaten down in the previous year, while there is an expectation these stocks will move up in the current year there is no guarantee.

A Buying Strategy For High-Profit Stocks Starting With Only $5000

After you’ve researched the market and chosen the investments you want to target it will be time to start buying those stocks. What you don’t want to do is put all your money in one stock, and you don’t want to buy all of each stock position at the same time. The best approach is to choose two or three different companies, diversified across sectors and cyclicality, that pay a dividend above the market average, and slowly build positions in each of them.

A good target for each position is $10,000. The $10,000 is an arbitrary round number that is an easily achievable milestone. Whenever a position reaches $10,000 you will want to manage it to stay around that size. That means when it’s time to reallocate your portfolio, usually once per fiscal quarter (four times a year), you sell stocks in any position worth more than $10,000 until that position is $10,000 and use the proceeds to start a new stock position.

Any time a position reaches the $10,000 mark it will be time to start a new position. Each new position should add income, diversification and a chance for capital growth within your portfolio. The great thing about this strategy is that it gains momentum fast. Dividends accrue constantly, income and capital gains are reinvested and, within a few years, it becomes possible to own a position in each of the eleven S&P 500 sectors.

If you choose to use the SPDR Depository Receipts or comparable ETFs to build your portfolio you have several options once you’ve built a position in all 11 sectors. At that time you can increase the size of each position, maybe to $20,000 or $30,000, or you can start targeting individual companies within each sector. If you opt for the second choice I suggest building a position in one company per sector and look for the same traits in each; high, stable income, healthy dividends, and a chance for capital growth.

This Is How To Build Your Winning Portfolio Positions

The key to building a winning stock portfolio with $5,000 is to be frugal. You don’t want to pay too many commissions and you don’t want to pay too much for your stocks. This means starting with only a few stocks and making as few purchases as possible. What I suggest is that you split your $5,000 into three positions of $1,665 and then split each of those in half to make two purchases for each position.

The reason why you want to divide your first investment into two purchase is this; the first time you buy may not be the best time to buy. By holding back on your investment to 50% of the position you protect yourself from possible price declines. There is no guarantee that a stock moving below the moving average will move back above it, you should always expect to see prices decline again before they move up. If the asset’s price does move lower, use that chance to get into the same stock at a better price.

If the assets price moves up after your first purchase that is awesome! It means you chose well. If the price is more than 3% above the moving average I suggest you wait for prices to fall or pull back to the moving average before making the second purchase. Don’t worry about paying more the second time because good stocks moving higher off a bottom or low tend to keep moving higher. After that, reinvest all dividends back into the original asset until it reaches your target position size.

Before making your purchases is a good time to look at the stock charts. You don’t have to be a technical analyst (makes money day trading stock charts) but you do need to know a few things about your stock charts. The first thing is that the market is full of smart people who know everything there is to know about the stock market, stock prices, and trading. You will not be able to beat them but you can profit by doing what they do.

What technical traders do is look for prices to hit specific price levels before making a purchase. Important price levels include moving average, previous high or low prices, areas where trading volume is high (the number of shares traded), or where the price action is congested (trading within a tight range or band).

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What we are looking for are times when prices are near key price levels used by other long-term minded investors. These include but are not limited to moving averages with 30, 50, 150 and 200 day time spans, and price peaks or troughs that appear on charts of daily or weekly prices.

The idea is simple, we want to buy our stocks (assuming we have chosen wisely) when they are low relative to when they are high. For us, this can be as simple as any time prices are at, near or below the 30-day moving average, but it may be best to add other criteria to the entry signal. If the chart is in an obvious downtrend it is wise to wait for prices to bottom out and begin trending sideways before making the first purchase. If an asset’s price is already trending sideways (at least 2 up and down peaks of sideways price action within a price range) or trending up a chance to buy when the price is below the moving average is attractive.

A Tip For Smart People Who Want To Retire Wealthy

If you want to retire before you are 30, retire early and retire wealthy you need to save money. You need to save money every month and add it into your stock portfolio to help it grow. Your dividends and capital gains are going to do a lot to boost your returns but it is the addition of new wealth that will supercharge it. It doesn’t take much, even $50 a month would help grow an account of $5,000 by 12% over the course of a year.

The concept of dollar-cost-averaging is that by buying stock every month the price of your investment will average out over time. What I say is that, if you blindly purchase a stock every month, you are going to pay too much, and you will spend too much money on commissions. Commissions are the number one killer of small portfolios so beware of over-trading. The good news is that many brokers offer low or no commissions on many top ETFs and mutual funds (but you aren’t going to invest in mutual funds if you want to build a winning stock portfolio).

What you want to do is save your money and do your buying three or four times a year. This could coincide with your quarterly reallocation or with entries timed to price action (when prices are at or below your moving average target). By staging your purchases this way, you will cut down on commissions paid by 60% compared to monthly purchases and use your capital in the most efficient manner.

The Best Stocks To Buy Today

The best stocks to buy today, are cheap high-profit stocks. I know this sounds trite but it is a simple truth. The best stocks to buy on any day are companies with proven records of profits, growing revenue, positive outlook or a combination of those three.

To find good sectors to buy today all you need to do is look at the consumer. The consumer is strong in America, and getting stronger, and that is seen in all the data. The average number of job gains has been above 200K for many years, this has led to record low unemployment, the US largest workforce ever, and rising wages. Wages have been increasing at a pace near 3.0% annually for two years and driving consumption. Consumption is seen in the retail, consumer discretionary, consumer staples and healthcare sectors which are all in protracted up trends and all pay steady, healthy dividends.

Along with consumption, there is also steady work going on in infrastructure. Construction data shows that while the US housing market languishes spending on roads, energy, utility, and other infrastructure projects is growing by double digits. The materials, industrial and utilities sectors are performing well and supported by construction spending, and also pay steady dividends.

The ones I would focus on for 2018 are the consumer staples (XLP), real estate (XLRE), energy (XLE), and financials (XLF) because they have the highest dividends relative to the broad market. The combined group, based on their representative SPDR Depository Receipts, yield nearly a full percent than the SPY (S&P 500 SPDR) and attractive for dividend/growth investors.

You Can Build A Winning Portfolio Of Stocks With Only $5,000

If you are still asking the question “is it possible to build a winning portfolio of high-profit stocks with only $5,000” let me assure you the answer is a resounding yes. It won’t be easy if it were everybody would be doing it, but it can be done. The most important things to have are the knowledge to do it, which we’ve given you, and the patience to make it work, which is totally up to you. If you have the patience to carefully pick a few good stocks allocated across sectors and business types and wait to buy them at the right times,  you are virtually assured of success. There is no reason to wait, it’s time to start looking for the high-profit stocks you want to buy for your winning stock portfolio.