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The $100,000 portfolio (updated September 10), contains a cash balance of $164,683.

After running loose and wild with the money for most of the year, it's time to hunker down and build a simulated portfolio with the cash. One that actually looks more like what your average, middle-aged growth and income investor would run with.

Basic Parameters

  • $150,000 allocated to stocks.
  • If possible, covered calls will accompany all stock positions.
  • All dividend and covered call income will be reinvested into the position that generated it.
  • $14,683 allocated to options trades.
  • No margin.

Before naming the positions and offering support/rationale for each, consider some general thoughts.

First, I believe strongly in not only buying and holding dividend stocks, but reinvesting all income they generate. And not just the dividends. If you're not writing covered calls, you're leaving money on the table.

As dividends come in, I'll reinvest them. When I close a covered call position or it expires, I will buy more shares of the underlying stock with the cash. To keep the paperwork and math basic, I will probably round up and down on fractional shares.

Second, not all stocks that comprise the core of the portfolio pay dividends. Most will. I do not use much quantitative analysis to select stocks. I go with companies and spaces I feel I know well. I buy and hold until a change in the long-term narrative warrants selling or some other action.

Personally, in my real-life portfolio, that approach worked out well this year.

Here in Part One, I go over two of the stocks that make up the portfolio core. In Part Two later this week, I round out the core with all dividend stocks. Then, Part Three, I will go over the standalone options trades.

A Portfolio's Core with $150,000

*All prices, as of the close, Tuesday.

Pandora (NYSE:P). Here's the most aggressive stock in the portfolio. And, of course, it does not pay a dividend.

Until The Wall Street Journal decided to report that Apple (NASDAQ:AAPL) might enter the online streaming field, my bull case for Pandora was not only playing out, it was finally seeing its reflection in the stock.

Other than a short-term drop in the stock price on the AAPL news, nothing has changed.

Pandora continues to prove that it can still monetize mobile as the gap between mobile revenue growth and mobile listener hours growth continues to close. I expand on this and other positive signs for Pandora over at TheStreet with reaction to the Apple story.

Bottom line: This is not the first and it will not be the last overdone Pandora sell-off.

I almost consider it a law. When P drops below $10.00, particularly on noise, I buy. At least a little. I did just that in real life on Tuesday down in the $9.70s. The market might be waiting for Apple's iPhone event to pass before it lets concerns over streaming competition rest for a while.

Trade: LONG 1,000 shares of P @$9.91. Cost: $9,910.

Covered Call: SHORT 10 P September $11 calls @$0.15. Income: $150.

Starbucks (NASDAQ:SBUX). I like that SBUX has taken a bit of a breather. For long-term investors - and this is now, by and large, a long-term portfolio - the recent dip followed by partial recovery signals a buying opportunity.

If there's one CEO in the broad retail space I want to hook my anchor to it's Howard Schultz. And, yes, I said retail.

Every traditional brick-and-mortar retail outlet struggling for survival should look at Starbucks and, from the standpoint of innovation and evolution, do likewise. Buying up a juice brand. Selling beer and wine at some locations. Buying up a small bakery chain. Signing a landmark deal with Square to take the lead in mobile payments.

All of this activity makes you wonder where everybody else is. Bears say this shows Starbucks is scared. I don't see it that way. Schultz sees the writing on the wall. Unlike Best Buy (NYSE:BBY), which to its credit brought in former Starbucks star Stephen Gillett, Starbucks will not wait to act when it's at the point where it must act. The company dictates change, both the pace of it and what it will be in the first place.

Trade: LONG 1,500 shares of SBUX @ $50.73. Cost: $76,095.

Covered Call: SHORT 15 SBUX September $52.50 calls @$0.25. Income: $375.

For now, I'll stop there. A total expenditure of $86,005 leaves the portfolio's core with $63,995. The covered call writing brings in, at the moment, $525. And there's the pool of $14,683 of more short-term speculative cash to spend on more aggressive options trades.

Again, Part Two will focus solely on dividends and covered calls.

If nothing else, I hope this exercise helps illustrate the power of using the two strategies in tandem. You can salvage a stagnant or even losing position if you're not only collecting and/or reinvesting dividends but doing the same with covered call income.

That's exactly what I did with my position in Intel (NASDAQ:INTC). I decided to bail just prior to the stock's dive. I got out at just below breakeven on the stock itself, however, reinvested dividends and covered call income helped bring my overall return into positive territory.

Source: Creating A Growth And Dividend Income Portfolio With $150,000, Part One