Do you manage your portfolio the same way when it’s $5,000, $50,000 or $500,000?

 

The world of investing is so interesting mainly because its strategies are widely spread from conservative to aggressive and everybody has their own thinking. Today, I’m asking a simple question that comes with a complex answer: does your portfolio size matter when establishing your investing strategy?

 

In other words: do you manage a large portfolio differently from a small portfolio?

 

“yes and no” would be my answer.

 

What I Would do with a Small Portfolio (~$5,000)

 

You don’t need much to start investing. In my humble opinion, you need $1,000 to open a brokerage account and start your investing journey. However, I’m not sure I would start off by buying stocks with $1,000, especially if you setup a monthly investment amount.

 

I did that for my kids’ RESP (education fund account): I identified 4 funds and I invest $200 per month. Once I reach $10,000, I’ll start managing this account like my retirement account: with stocks.

 

The reason why I do this is simple: the amount is very small and doesn’t allow for much diversification. I wanted to go with small caps + both US and Canadian stocks in this account. It was impossible to do it with individual stocks. This is why I’m paying an average of 1.50% in MERs in this account. But 1.50% of $6,000 is worth $90… I can live with this expense for now.

 

The other way to manage a small portfolio if you want 100% dividend stocks is to aim for big blue chips selling many products around the world. Companies such as Kimberly-Clark (KMB), Coca-Cola (KO), McDonald’s (MCD) and Wal-Mart (WMT) are part of our Starter portfolio at Dividend Stocks Rock for this reason. The idea was to pick companies that will not budge too much in a case of a bear market and that will continue to pay a steady dividend. With $1,000, I would buy 1 company and keep putting money aside to buy the next one until I have 4 positions. Then, I would grow them until my portfolio is over $5,000 and add more stocks.

 

What’s the Difference between 25K and 100K?

 

When I bought this blog in 2010, I only had $9,263 invested. I didn’t have a strong investment approach as I have today. I was basically jumping from one potential stock to another and making money with my trades quickly or losing it on a bad pick.

 

Less than four years later, my portfolio is knocking on the door of the $50,000 mark. How did I manage my portfolio going from $10K to $50K? By adding one position at a time.

 

I was lucky to evolve in such bullish market. This has helped me without adding more money to my current positions as the value was growing as fast as my savings. Ideally, I want to have not more than 10% of my portfolio invested in one stock. I currently have two stocks breaking this rule: Telus (TSE:T) and Coca-Cola (KO). They both represent about 12 to 15% of my portfolio each. Since they are part of my core holdings, it’s not a big issue.

 

On the other hand, my next investment will be put towards another stock until I reach 20-25. Then, I will just add more money to each of them or rebalance my portfolio if a company fails to meet my investing requirements in the future. This is how I will grow my portfolio to 100K.

 

Dividend payouts and additional liquidity are invested in an index fund that is traded without fees. This enables me to stay 100% invested in stocks at all times and benefit from liquid cash quickly to make a purchase. I rarely hold more than $1,000 in this account as I usually want to use my money to buy the next stock on my watch list ASAP.

 

How I’ve Divided Portfolios at Dividend Stocks Rock

 

In order to help investors, I’ve created a set of 6 different portfolios for both American and Canadian investors. This makes 12 portfolios in total. Here’s the breakdown:

 

Starter portfolio (<$25,000):

Regardless if you are starting with $1,000 or $10,000, I believe your investing strategy should be the same: invest in big blue chips paying steady dividends. In other words; start by building your future core portfolio before taking additional risks. By using our dividend stocks list or stocks in the 25K portfolio, members can improve their starter portfolio and add more positions to their holdings.

 

25K+ Conservative & Growth:

Starting at 25K, I believe an investor has a decent size portfolio and should start thinking about their risk tolerance. This is why I’ve split the 25K+ portfolio into two categories: conservative and growth. The conservative portfolio will include more blue chips and consumer stocks while the growth portfolio will take a few more risks for better or worse. This is the whole point of using your risk tolerance; taking risk or not!

 

100K+ Conservative & Growth:

Then, we add more stocks to a larger portfolio. With 100K invested in the market, you want to become more diversified. This is why we go to 20 stocks in these portfolios. Each position is equally owned representing 5% each. 20 stocks is enough to be well diversified while not having to spend entire weekends analyzing each stock every quarters.

 

500K+:

For our wealthiest clients, we recently went with a 500K portfolio. This portfolio is built with 30 stocks and the choice of three ETFs paying either interest or dividends. The goal is to provide additional diversification along with a better core with ETFs to manage risk tolerance. The more you invest in ETFs, the safer your portfolio becomes. This is usually what wealthy investors want: to protect their profits and keep up with inflation.

 

You can get a sneak peak of our portfolios at Dividend Stocks Rock. Since we only launched the 500K portfolio in May, we don’t have much data. However, the other 10 portfolios started on October 1st 2013 and 8 out of 10 portfolios beat their benchmark.

 

What about you, how do you manage your portfolio? Do you mind the size of it when you establish your strategy?

 

 

Disclaimer: I hold shares of KO, MCD & WMT, T

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4 Comments   |  

4 Comments

May 16, 2014, 3:00 pm

[…] Portfolio Management Does Size Matter Mike discusses portfolio size in terms of management and how might go about managing portfolios of different dollar amounts. I personally manage my portfolio no different now at $160k then I did when it was $10k. I continue to focus on the best businesses I can find at valuations that make sense while also monitoring weighting to different companies as it applies to diversification. […]

May 16, 2014, 5:09 pm

I think if you are just starting investing it would make more sense to stick with high growth stocks to start building some net worth. With just a small amount invested your risk would be limited to your small initial investment. However with a large portfolio value I would tend to the much more conservative route and aim for capital preservation with small reliable measured growth with a small portion maybe 5% invested in high growth stocks

May 17, 2014, 5:07 pm

[…] The Dividend Guy wondered if portfolio size matters. […]

May 22, 2014, 11:38 am

I started a little fun money investing fund with about $5k I got from an 401k cash out and did just as you’ve suggested here. I chose five Dividend Aristocrats: McDonald’s, Walmart, Johnson & Johnson, Abbott Labs, and Coca-Cola. My intent is to just hold them for the long term and see how they do.

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