My readers are completely aware that I write about retirement strategies. Mostly for those who are anticipating, or already in, retirement. However, I have gotten a significant number of requests from the young investors, who will lead the way over the course of the next 30-40 years, to write an article on what I would consider a portfolio for the younger investors.
Let me paint this picture to set the stage:
Our young investor is between the ages of 21 and 25 and fresh out of whatever educational institution they attended. It could have been college, trade schools, or even their first job to cut their teeth on.
Now they are ensconced in a well paying job, career, or entrepreneurial enterprise with a very bright future ahead of them. Probably lasting for the next 35-45 years.
Their income level is strong and they have just begun socking away the maximum amount of money allowed into all the tax deferred savings plans available, and are well on their way towards saving another 10-20% outside of those plans.
These investors are off to a great start.
Recently, they inherited a bunch of money from a long lost Uncle and have money to invest with. Normally, I would say let's start the dividend investment strategy now so you can create wealth for the long haul.
Today I will focus on the possibility of creating enormous wealth. If there was one time in investors' life that I think they should give this a shot, it would be under the circumstances I have outlined above.
Let me make no bones about this: this strategy is the highest risk approach around, and is not for the faint of heart. That being said, how many of us wish we were 24 years old, with our entire future ahead of us and with everything set up to have the secure future we desire, and wish we would have invested in Microsoft (MSFT), and IBM (IBM), or whatever other company we can place in the "coulda woulda shoulda" category.
You Will Never Be This Young Again
If there was ever a moment in time to "go for the gusto," youth is that time. With a very long time horizon to work with, young investors can take many more risks when selecting stocks. If the portfolio does not work out in 2-5 years or so, there will be plenty of time to recover from losses incurred. That being said, there still requires plenty of due diligence to lower the risk and to select stocks that actually have a chance at creating tremendous wealth.
Obviously, the big question is how to develop a portfolio to actually have a chance to achieve that goal. It is not easy, but it can be plenty of fun and really exciting. Especially when it pays off.
If the portfolio does not pan out in a few years, this investor will still have already set in place the beginnings of a much safer and secure financial future by virtue of the fact that all the right moves are already being taken regardless of the outcome of this "Young and Restless" portfolio.
As with any portfolio, there should be a few stocks that we already know can be counted on to grow over time. Not necessarily with dividends, but with a great game plan for capital appreciation already in place.
The first two stocks that I would call "Anchors," would be Amazon.com (AMZN) and Apple (AAPL). Without getting into the nitty-gritty of each of these companies' current business, suffice it to say that these two companies have changed the way the world works.
Each of their ecosystems is still in the growth mode and in my opinion have not even begun to enter the value phase. We can discuss the merits of these stocks for weeks but that is not the focus of this article. It is enough to state that Apple is the technology company of now and the future. Amazon is the conglomerate of the now and the future.
Both companies are already deeply ingrained in our everyday lives. Begin your "Young and Restless" portfolio with these two anchors to hold the entire portfolio together.
Now that we have the anchors, now we need the "glue" to bond the two anchor companies together. Google (GOOG) is a company that crosses over into so many areas of each of our anchor companies, that all 3 are actually reliant upon the other! Yes, Google tries to be more of everything, so one might consider that to be overlap, but in reality the strength of the company is such that it makes both Apple and Amazon more successful. In return, Apple and Amazon make Google stronger.
By having the anchors and the glue working together, we have the foundation of a pretty powerful portfolio. Now we can look at the stocks of the future that can potentially explode a portfolio into actual wealth.
Coulda Shoulda Woulda Stocks
Facebook (FB) is a company that has nearly 1 billion users. Anything with a user number that high will eventually succeed. Right now the company is wading the initial mess of an overpriced IPO and various missteps, but the world of social media is here to stay. Facebook is the largest social media network company that has ever existed. In that respect, it deserves to be considered as a potential "coulda woulda shoulda" stock at today's share price.
At some point, the company will begin to monetize itself. FB is already getting stronger in the advertising sector which drives revenue and earnings growth, and the focus on mobile applications will eventually set the gold standard. Who else can possible set the standard? Right now, Facebook has the clear opportunity to be everything that everyone uses on mobile devices for social interaction and more.
Add to this the fact that FB has already been taking some solid body blows, so the growth of the company has been tempered. If the company gets its act together, this stock alone can make investors millionaires over time.
Netflix (NFLX) has been a stock that has known greatness and disgust all within one year. Just about 18 months ago, the stock was selling for nearly $300.00/share and today it is less than $78. The value of this company is that it is the gold standard of streaming movies everywhere, on everything, and it has not scraped the surface of its growth potential.
As the notebook, tablet, and smartphone markets explode, Netflix already has the infrastructure in place to succeed better than any other company of its kind. It was not long ago that Netflix changed the entire face of the home video market. Now it is the face of the video market on basically all "smart" devices.
The real value here is that Netflix is not only a growth company in and of itself, but it probably will be a takeover candidate if someone ponies up plenty of money for it.
I believe Netflix can offer enormous capital appreciation rather quickly, based on these opinions. Amazon Prime (from Amazon.com folks) is rolling out a subscription based video resource for $8.00/month, so I would not be surprised to see various moves by another mammoth company looking to own Netflix. Maybe a company like Microsoft? Just a guess folks, but with its own new Surface tablet, it could be food for thought.
The fact is that Netflix already has what others want. If "others" are able to pay up for Netflix, shareholders will only gain wealth.
The "Young and Restless" Portfolio Kickoff
I have outlined the beginnings of a portfolio that the younger investors can ride. The stocks are not fly-by-nighters, but they are NOT slam dunks either. By beginning a portfolio such as this, a younger investor can become wealthy. Keep in mind that this basic portfolio can be expanded of course, depending upon each investor's desires.
The portfolio consists of Apple, Amazon, Google, Facebook, and Netflix.
I believe this to be quite a strong foundation for capital appreciation with some very good stocks. The revenue growth of each company has been dramatic. Sometimes erratic, but each are in growth mode.
Generating cash is essential for growth. We already know that growth companies focus on revenues and cash first, then on earnings. Some will argue that if a company goes too long without earnings, it will fail. Amazon has proved that to be inaccurate in its case. In the case of Apple, the company has basically everything.
Amazon and Facebook are not making money yet. Facebook will make money really soon, and Amazon keeps growing its ecosystem. I believe AMZN will explode in earnings once it stops spending. Apple, Google and Netflix make money now, and I believe all 3 are just getting started.
The Bottom Line
Some might say I have taken the easy road here with these stocks, but they are by no means slam dunks and it does take a much higher risk profile and time horizon to have a portfolio that starts like this. These are not penny stocks or start-ups of course, but remember this is a starting point for the young guns who can branch out from here.
We do not know where a portfolio of this nature can go, but with these stocks as a starting point, younger investors will be setting themselves up to become very, very wealthy if it works.
Additional disclosure: I hold Apple LEAP calls and I have sold Apple naked puts.