Mar 10
21 Dividend Stock Portfolio
This 21 stock portfolio is an extension of the Monday and Tuesday portfolios. I began with a ten stock portfolio, extended it to 14, and now we see the QPP analysis for 21 dividend paying stocks. The most recent seven companies come from my dividend stock screen.
In this larger portfolio we were able to increase the projected return by more than one percentage point, but gave ground by increasing the risk. However, the Return/Risk ratio is the best of the three portfolios at 0.62. In this portfolio we managed to move the Diversification Metric above 40%.
With a 9.1% projected return, we do see a bit of daylight between the expectation for this portfolio over that projected for the S&P 500. The risk is approaching our maximum of 15%. One could do a lot worse than to hold these companies in nearly equal percentages.
Be sure to check the Portfolio Performance update posted on March 13th.
This correlation matrix may be a tad wide for some readers. By adding more stocks, we do pick up a few more that have a low correlation with the S&P 500.
March 11th, 2010 at 8:42 am
The following comment comes from a user.
Lowell, your comment: “use Dividend Aristocrat stocks I am using in the dividend portfolios, then setting up a portfolio based on the “Big Six” U. S. equity asset classes will need to be modified. …snip… Construction a portfolio around individual stocks is a very different process than building the portfolio around index funds or ETFs.”
I am setting up an ETF portfolio sprinkled with some dividend stocks aka ‘Mosaic’ for ease of management and better risk control. The point was that if one is allocating most or all of an asset class (ie LG) then that suggests – for that portion of allocation – seems to have greater “company risk” with just two companies in say LG or LC. I was not inferring that all investments in the M* 9 blocks be stocks. If one uses 3-4 stocks in LC & LG with ETFs in all the other slots, does QPP say it lowers risk?
There are other ways to divide this pie. One could have 3 stocks in ~3% each or about 9% of the portfolio. The *remaining* 91% could then be divided up as if it were the entire 100% ETF portfolio as your passive portfolio does. Then how does the QPP rate the risk? This approach does give more allocation to the US, but that could be reduced by making the US ETF portion less, maintaining a proper US to foreign allocation.
This was the underlying question in the original statement – just didn’t want to be so wordy….
Steve
PS it easily seems that low beta stocks added will lower the QPP risk, but I think you intended earlier that *any well chosen stock* (ie good Manifest Quality Rating or Creme List) will lower QPP risk.
March 11th, 2010 at 8:46 am
“I am setting up an ETF portfolio sprinkled with some dividend stocks aka ‘Mosaic’ for ease of management and better risk control. The point was that if one is allocating most or all of an asset class (ie LG) then that suggests – for that portion of allocation – seems to have greater “company risk” with just two companies in say LG or LC. I was not inferring that all investments in the M* 9 blocks be stocks. If one uses 3-4 stocks in LC & LG with ETFs in all the other slots, does QPP say it lowers risk?”
The quick answer is yes. I’ve found that low beta stocks tend to bring down overall portfolio risk, even if the core of the portfolio is built around ETFs or other type index funds. I continue to work on a “Low Risk” portfolio over on the Premium Content side of ITA Wealth Management. My reworking of the Bohr Portfolio is a move in this direction.
Lowell
March 11th, 2010 at 8:51 am
“There are other ways to divide this pie. One could have 3 stocks in ~3% each or about 9% of the portfolio. The *remaining* 91% could then be divided up as if it were the entire 100% ETF portfolio as your passive portfolio does. Then how does the QPP rate the risk? This approach does give more allocation to the US, but that could be reduced by making the US ETF portion less, maintaining a proper US to foreign allocation.”
From my experimental work, adding three individual stocks to an ETF oriented portfolio is the minimum if one is using stocks at all. There are small portfolio where I do not hold any stocks. I don’t think I’ve found much benefit when one goes much above five stocks. Here is the reason. Assume one holds at least 3% in each individual stock and most of the stocks are in the Large-Cap area. 3% x 5 stocks = 15% of the portfolio and I prefer not to have much more that 15% invested in the Large-Cap space of any portfolio. At least in the current market environment.
Lowell
March 11th, 2010 at 8:53 am
“PS it easily seems that low beta stocks added will lower the QPP risk, but I think you intended earlier that *any well chosen stock* (ie good Manifest Quality Rating or Creme List) will lower QPP risk.”
Yes, most of the “Creme List” type stocks tend to move differently than the S&P 500 and therefor bring diversification to the portfolio.
Lowell
March 11th, 2010 at 11:11 am
Lowell,
For now I like the idea posted 2 above (8:51AM). That is reduce the Large asset class ETFs but not eliminate them with stocks. I agree with not going too much on LG, LC, LV, but may compromise the difference. This would slightly increase the US portion, but keep from relying on just stocks for one asset class. I think 3-4 dividend stocks that show decent forward growth with good financials would nicely round out a low maintenance portfolio. I will be setting up several of these with different amounts and may do one with only ETFs.
Steve
March 11th, 2010 at 12:04 pm
Steve,
Are you using QPP to help with setting up a “risk appropriate” portfolio?
Lowell
March 11th, 2010 at 5:49 pm
Lowell,
No I’m not, just using the data as you present. Thus the asking of questions..
Steve
March 11th, 2010 at 6:58 pm
Steve,
I will likely amplify a bit on the “Low Risk” portfolio I’m working on. Look for information tomorrow or this weekend over on the Premium side of the blog.
Lowell
March 14th, 2010 at 2:41 am
how does the 21 stock portfolio compare to the IDV ETF??
March 14th, 2010 at 3:09 am
“How does the 21 stock portfolio compare to the IDV ETF?”
The stocks lists are very different. None of the 21 stocks show up in the top ten holdings of IDV.
Lowell