Investing regularly is a proven way for the everyday person to generate wealth over time. However, it can be difficult to build stock portfolios. This is because most people haven’t received formal training on how to do so. In this article, I’ll discuss how I would build a portfolio from scratch if I were to start over today.
Start by looking at companies you interact with a lot
If you’re starting with no investing experience whatsoever, the first thing you should ask yourself is, “Which companies do I use on a day-to-day basis?” This is a good approach to take, because it narrows down your initial search to companies that you are familiar with and know provide important products or services.
For Canadian investors, choosing one of the banks makes sense. The Canadian banking industry is highly concentrated, with the top six banks serving most Canadians. If I had to choose one company out of that group, it would be Bank of Nova Scotia. Based on valuation metrics, Bank of Nova Scotia provides much better value than its peers. It also offers great growth potential via its focus on international growth.
Look at the Canadian Dividend Aristocrat list
In Canada, a Dividend Aristocrat is defined as a company that has raised its dividend distribution for at least five consecutive years. It’s important to note that are other important considerations that investors should look at when investing in a company. However, filtering companies by this requirement will provide a list of companies that possess a management team capable of allocating capital intelligently.
At the top of the list, investors will find companies with dividend-growth streaks that have spanned multiple decades. Fortis is the company that interests me the most, out of all the Canadian Dividend Aristocrats. It holds the second-longest active dividend-growth streak in the country. Fortis is also known as being a recession-proof company. A provider of regulated gas and electricity, it generally continues to see steady business even during the worst economic conditions.
Find out what the younger generation is into
If you’re interested in adding growth stocks to your portfolio, it would be a good idea to figure out what the younger generation finds valuable. In 2012, investors would have made tons of money if they invested in companies like Netflix, Amazon, and Apple.
Today, Shopify appears to be very popular among millennial and Gen Z entrepreneurs. Shopify offers merchants with an easy-to-use platform, that can be set up in a single day. This allows even those without any website development expertise to quickly set up an online shop. Around the world, more than one million merchants rely on Shopify’s platform. This includes everyone from the first-time entrepreneur to large-cap companies like Netflix.
Foolish takeaway
There’s no clear-cut answer on how to build a portfolio. However, investors can make this task a lot easier if they start by looking at companies they already know and rely on regularly. Next, investors should look for Dividend Aristocrats that interest them. Finally, take note of what the younger generation finds valuable.
