We continue to look for ideas from others for investment selections. Motley Fool contributor Brian Stoffel owns shares of Apple (AAPL), Google (GOOG), Travelzoo (TZOO), Coca-Cola (KO), SodaStream (SODA), Zipcar (ZIP), and Netflix (NFLX). He sets out to recommend the four stocks he already owns on which he would base a long-term investment portfolio.
His four long-term picks are:
- Apple (AAPL) clearly has had a great run recently, and Brian believes that while Steve Jobs is no longer with us, his greatness still is -- in the form of those products he helped design and new ones which the public does not yet know about.
- Google (GOOG) If Apple is a good example of a company with a bright future, then I think Google is an even better example.
- Coca-Cola (KO) -- A complete contrast from the tech giants, which gives great diversification. The Coke brand is just about the most ubiquitous in the world.
- Zipcar (ZIP) is the spunky upstart. Zipcar is capitalizing on a shift underway in many urban areas: a second-guessing about the necessity of car ownership. In much the same way the recent financial mess has made us rethink the imperative of home ownership, many Zipsters have decided that the benefits of car ownership don't outweigh the costs.
All four of these stocks are also current selections of The Motley Fool's "Million Dollar Portfolio" service.
This is certainly an interesting selection and worth measuring against our ETF benchmark of a balanced portfolio of dividend-producing ETFs to see how the historical returns compare. This provides a stark contrast between the blanket coverage of an ETF portfolio and one who picks a stock based on his or her belief in the company.
|Asset||Fund in this portfolio|
|REAL ESTATE||ICF (iShares Cohen & Steers Realty Majors)|
|FIXED INCOME||TIP (iShares Barclays TIPS Bond)|
|Emerging Market||VWO (Vanguard Emerging Markets Stock ETF)|
|US EQUITY||DVY (iShares Dow Jones Select Dividend Index)|
|US EQUITY||VIG (Vanguard Dividend Appreciation ETF)|
|INTERNATIONAL EQUITY||IDV (iShares Dow Jones Intl Select Div Idx)|
|High Yield Bond||HYG (iShares iBoxx $ High Yield Corporate Bd)|
|INTERNATIONAL BONDS||EMB (iShares JPMorgan USD Emerg Markets Bond)|
- 4 Stocks To Build a Portfolio-- Total of $10K invested equally in each stock
- Retirement Income ETFs Tactical Asset Allocation Moderate -- Above funds using TAA (40% fixed income, 30% for each of the top two asset classes)
- Retirement Income ETFs Strategic Asset Allocation Moderate -- Above funds using SAA (40% fixed income, 12% for each of the five asset classes, funds selected based on price momentum)
Portfolio Performance Comparison
|Portfolio/Fund Name||1-Year AR||1-Year Sharpe||3-Year AR||3-Year Sharpe||5-Year AR||5-Year Sharpe|
|Retirement Income ETFs Tactical Asset Allocation Moderate||-4%||-35%||10%||76%||8%||58%|
|Retirement Income ETFs Strategic Asset Allocation Moderate||-2%||-15%||11%||59%||3%||12%|
|4 Stocks To Build a Portfolio|
The table doesn't tell us anything, because ZIP is a very new stock. However, the remaining three are well-known companies
My concerns with this selection are:
- Four stocks is OK as a base, but you need more diversification for a long-term portfolio. There are very few of us who can accurately predict the future, and you want a range of equities to remove some of the volatility.
- Dividends are going to be an important source of income over the next few years, as growth is going to be anemic. Having some solid dividend providers seem an important addition.
- AAPL has had such an impressive run, one wonders whether it can continue. This is yet to be seen.
The more detailed analysis and graphs give you a visual view of the volatility.
The graphs show me the volatility of these stocks. With only four stocks, you will always see more volatility than a more balanced portfolio, but this one is certainly going to give you a wild ride. This will be an interesting portfolio to track, but I think it's only for those who have a long time horizon and can withstand some big swings in the short to medium term. I prefer the ETF portfolio, as I don't like the wild fluctuations.
Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.