Many individuals make the mistake of investing a small amount in too many different stocks, thereby diluting returns. Mapping the performance and planning an investment strategy for 50–60 stocks is difficult for an individual. While diversification reduces risk, over-diversification reduces returns. Then, how do you choose the top 10 best stocks for your portfolio. You can earn $1 million by investing in only 5 to 10 different types of stocks.
How to choose stocks for your $1 million portfolio?
When choosing stocks, ask yourself what type of return you want from your investment portfolio. Are you looking for a safer passive income or wealth creation? Your return expectations will determine the stocks you might want to buy.
To create a $1 million portfolio, you need growth and high-dividend stocks and a long-term investment horizon. While focussing on these stocks, you can diversify your portfolio across sectors and asset classes. You can also exit your position in the stock completely once you feel it has reached its peak.
Invest for wealth creation through a Tax-Free Savings Account (TFSA) that can help you reduce your tax bill on returns.
An investment strategy for a $1 million portfolio
Set aside $12,000 this year and increase the invested amount by $1,000/year for the next 20 years. Book profits from time-to-time to ensure your portfolio generates an average annual return of 10%. Invest this 10% return over and above your annual investment to generate another 10% return.
| Year | Investment | Investment Return @ 10% | Total Amount |
| 2023 | $12,000 | $12,000.0 | |
| 2024 | $13,000 | $1,300.0 | $26,300.0 |
| 2025 | $14,000 | $2,630.0 | $42,930.0 |
| 2026 | $15,000 | $4,293.0 | $62,223.0 |
| 2027 | $16,000 | $6,222.3 | $84,445.3 |
| 2028 | $17,000 | $8,444.5 | $1,09,889.8 |
| 2029 | $18,000 | $10,988.98 | $1,38,878.8 |
| 2030 | $19,000 | $13,887.9 | $1,71,766.7 |
| 2031 | $20,000 | $17,176.7 | $2,08,943.4 |
| 2032 | $21,000 | $20,894.3 | $2,50,837.7 |
| 2033 | $22,000 | $25,083.8 | $2,97,921.5 |
| 2034 | $23,000 | $29,792.1 | $3,50,713.6 |
| 2035 | $24,000 | $35,071.4 | $4,09,785.0 |
| 2036 | $25,000 | $40,978.5 | $4,75,763.5 |
| 2037 | $26,000 | $47,576.3 | $5,49,339.8 |
| 2038 | $27,000 | $54,933.98 | $6,31,273.8 |
| 2039 | $28,000 | $63,127.38 | $7,22,401.2 |
| 2040 | $29,000 | $72,240.12 | $8,23,641.3 |
| 2041 | $30,000 | $82,364.13 | $9,36,005.4 |
| 2042 | $31,000 | $93,600.54 | $10,60,606.0 |
There would be some bearish years when your portfolio might give negative returns. That is the time to buy and not sell. At that time, hold the stocks and add to the ones you are bullish on, reducing your average cost. When the stock recovers and gives you a 30–40% return, it will make up for the negative return and give you an average annual return of 10% or more.
Kickstart your $1 million portfolio with this stock
Ballard Power Systems (TSX: BLDP) is a high-growth stock that comes with high risk. The company is in the middle of commercializing green hydrogen fuel cells for heavy vehicles. It has started receiving orders across verticals like bus, truck, rail and marine, and select stationary power applications. In the fourth quarter, the cleantech had an order backlog of US$133.4 million and revenue of US$20.5 million. However, it will take time for the company to start making profits as it is working on reducing product costs and improving manufacturing.
Do not judge this stock by its revenue and profit fundamentals. It is a future growth stock. Green hydrogen has immense potential to be as disruptive as electric vehicles once it is widely adopted. Government support is driving green hydrogen adoption. Ballard Power Systems stock has the potential to give you more than a 10% annual investment return in the next 10 years. By that time, green hydrogen could probably achieve wider adoption.
How to book your 10% return
BLDP stock is trading closer to its 52-week low, creating a buying opportunity. You can lock in a recovery rally of 30–50%. Here’s how. Invest $500–$1,000 and buy 154 shares of BLDP at $6.50. You can sell 50 shares at $10 ($500), another 50 at $12 ($600), converting your $1,000 investment into $1,100. This way, you book a 10% return while holding 54 BLDP shares for the long term. You can add to these 54 shares when the stock dips again. This may include adding large-cap growth and dividend stocks to your portfolio at their lows and holding them towards their rally.
