Investment Portfolios for Beginners: Here are the keys to better long-run returns

Investment portfolios for beginners need to employ tried and true strategies for portfolio building—while also considering personal risk tolerance and ways to spot top-quality stocks

We believe you should keep some key points about the mechanics of successful investing in mind when building an investment portfolio.

To compile some of the best investment portfolios for beginners, we recommend our Successful Investor philosophy, which we outline below.


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 A brief explanation of our three-part Successful Investor approach to portfolio building 

  1. Invest mainly in well-established, dividend-paying companies. Ideally, some of your picks should also have hidden assets. That is, assets that many investors disregard or fail to appreciate.
  2. Spread your money out across most if not all of the five main economic sectors: Manufacturing & Industry, Resources & Commodities, the Consumer sector, Finance, and Utilities.
  3. Downplay or avoid stocks in the broker/media limelight, where a modest business setback can set off a deep, sudden and sometimes permanent drop in the stock.

Our first rule tells you to buy high-quality stocks. These firms will have a durable business concept. They can still wilt in economic and stock-market downturns, of course, like any stock. But most will thrive anew when the good times return, as they inevitably will.

Our second rule tells you how to diversify effectively, rather than simply buying a variety of stocks. This has two benefits. It cuts your risk of losses by keeping you from investing too heavily in any industry or sector that is headed into a big downturn. But, by spreading your investments out more widely, you also improve your chances of latching on to a market superstar—a stock that will wind up producing two or five or 10 times more profit than average. Over the course of any investing career, you need a few superstar stocks in your portfolio, to offset the losses you’ll inevitably experience.

Our third rule keeps you out of investor fads, particularly when they are nearing a popularity peak. Getting in at the peak of an investment fad can be extremely costly—as recent bitcoin investors can tell you.

Investment portfolios for beginners: Know your investing style and temperament

Smart investors balance aggressive and conservative investments in their portfolio with their investment objectives, and the market outlook. Above all, they avoid the urge to become more aggressive as prices rise and more conservative as prices fall.

Every case is different, because each individual has different investment objectives, acceptable risk levels and so on. But you should generally hold on to high-quality stocks, even if they have jumped in price. However, you may want to consider selling some shares of successful conservative stocks you own if they go way up and so come to make up too much of your portfolio—say, more than 8% to 10%. In that case, it may make sense to take at least partial profits.

When investing for our clients, we rarely put much more than 5% of a portfolio into any one new stock.

Investment portfolios for beginners: Look for stocks with a history of paying a dividend

One of the best ways to pick top quality high-growth dividend stocks is to look for companies that have been paying dividends for at least 5 to 10 years. Companies can trump up quarterly earnings, or issue press releases to appear to be making strong progress, but they cannot fake dividends. Dividends are cash outlays that an unsuccessful company could never produce. A history of dividend payments is one thing that all the best dividend stocks have in common.

Investment portfolios for beginners: Learn how to spot double-barreled investing opportunities

Most market indicators look at a narrow range of factors, and try to come up with an all-or-none answer. If you want to profit from a balanced, healthy sense of déjà vu, you’ll look for analogous situations, rather than instant replays.

The best example I can think of is one I’ve seen three times over the course of my investment career. It occurs when the two factors below come together in what you might call a “double-barreled buying opportunity”:

  • Investors generally are fearful and have low expectations for market performance; and
  • There’s a lot of hidden value in the stock market—that is to say, value that is not yet evident in the economic or business statistics.

These two factors both improve your chances of making money in the stock market, but they do it in two different ways.

When investors are fearful and have low expectations, stock prices tend to be on the low side. They can rise by merely getting back up to average. Hidden value also works in your favour. Hidden value should eventually start to generate gains, spurring a rise in stock prices.

Each of these two factors improves the odds that prices will go up after you buy. Notice, though, that we’re talking about a “buying opportunity,” not a guaranteed profit. Keep in mind as well that the combination may need time to pay off.

How aggressive an investor are you, and do you expect your temperament to change as you age or as money grows?

What was some of the best advice you received when you first began putting together your investment portfolio?

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