Passive income

Hey guys, I am trying to build a passive income portfolio. Has anyone done this from their younger years and what kinds or stocks were you buying? Keen to learn some portfolio strategies.

I am considering 10 stocks, the same monthly payment and trying to buy low. So buy what isn’t performing.

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The easiest way to build a passive income portfolio would be to invest monthly into an index fund. An index fund that pays out income.

However, if you want to invest into single stocks, then look into stocks that pay a dividend. You can then choose to reinvest this dividend and buy more shares, or use it purely as cash. Generally speaking, I think anything around 2%-5% is considered a safe dividend. If you start getting into the 10% dividend range then it can be hard for a company to sustain.

Good luck!

Just 10 stocks is very risky. An academic study has shown you need 60 to eliminate your non-systematic risk in the sector/region your companies are in.

Buying “low” is of course the name of the game, but judging that on the basis of “what isn’t performing” does not sound like a wise strategy. What if it never performs well?

The trick is finding valuable companies that are going to keep churning out the profits on a regular basis for 30+ years, and which are currently undervalued by everyone else. A very tricky thing to do.

So tricky, perhaps only a small handful of people in the world have managed to pull it off to a successful degree over long periods of time. Warren Buffet was one. You could invest in Berkshire Hathaway, led by Buffet. But even Buffet says that the way to go these days is to just invest in an ETF tracking a broad index, like the S&P 500.

There are 2 famous funds in the UK led by investment managers considered to be the UK’s Buffets. Though Freetrade doesn’t offer funds. And those funds suffer from a similar concentration risk as your 10 stock proposal.

When going with ETFs, you don’t necessarily need ones that focus on dividends. Over the long term you just want growth. When you retire you can think about selling for capital gains and buying something else that gives a more assured yearly income.

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I agree with all the above and my main isa is in Berkshire with my pension in an S&P tracker,

I suppose I see this as a high risk strategy to try and gain rewards over the long run. Plus it is a good bit of fun.

So far I have been basing picks on P/E ratio, dividend cover, yields and general markets news.

Great platform for something like this

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I think the response from Sendu is ok. However if you’re going to invest in 60 stocks to eliminate risk you’re far better off just buying a low cost index fund. There is no way you can do enough research to purchase 60 good stocks. It’s a waste of time and unsustainable

Here, I’ve uploaded a video showing my portfolio after about 5 months of use. I mainly invest in tracker funds and I’m up £104 currently. With a performance value of 4%.

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Follow my little dividend journey

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What study is this?

In terms of income, I would definitely look at some of the dividend ETFs as everyone else has mentioned.

In addition, the FTSE100 currently has a really good dividend yield of c.5%, so buying this index could help you too. It would also tick your box of buying low because it’s currently out of favour, hence why the dividend yield is relatively quite good.

If you’re really set on individual equities (which is high risk but not necessarily bad if you are happy to take the risk and have a good capacity for loss) then perhaps have a look at the ETF factsheets and find the rope 10 holdings. If you do this for multiple ETFs it should give you a short list to research :slight_smile:

60 stocks is way too many in my opinion, and I can’t recall any studies showing that as the magic number.

The problem with the academic studies is they usually don’t invest how a “smart” stockpicker would, randomly generating portfolios of stocks and simulating the results.

However in prudent stock picking, it’s important to look at the larger portfolio. Holding 10 companies across 10 different sectors (healthcare, energy, industrials etc) would result in much more adequate diversification than 100 stocks in one sector.

My recommendation would be start of with an ETF, there are a few dividend focused options on FreeTrade. Then take your time and research what’s out there to see if there are any individual companies you think deserve a place in your portfolio.

Excluding the US, there are a lot of stocks that are considered cheap, however remember stocks are usually cheap for a reason

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One I believe will grow quickly is XYO but before investing you can download their free app
COINapp XYO and you can start collecting rewards instantly. Small but keep them and watch them grow faster than bitcoin. Just my preference not advice but worth checking out for yourself.

Hey man,

Agree with most things that’ve been mentioned.

When you say passive income, it does depend broadly on your goals, so is this income you can spend and enjoy life with, or more modest income to build for the future?

Either way, I don’t see much wrong with picking 10 stocks, I do it with my portfolio, but I would have an ETF in there or two that pay quarterly or sometimes monthly dividends which may help insure against other losses.

Those are my 10, naturally do your own research etc. I’m also dollar cost averaging, but if I’m honest, if I invested on day 1 the same amount and held my profits would be significantly higher - so it has its downsides.

Great Video, in case you need some spare change, I will provide my 2 cents.

  • Overall Banks, Housing and Materials are all cyclical stocks, so in a downturn your may see bigger than average swings.

  • Housing fundamentals are good right now, however, be careful that their earnings may be largely supported by the government.

  • Specifically UK banks are not an area which I would want to be in a No Deal Brexit (short term) and in a remain scenario anything near the ECB looks unattractive at best (long term)

That being said Insurers are a good call, love LGEN right now, and if i had to choose my fav house builders Barratt (1) and Taylor Wimpy (2) would be my choices. Good work keep it up! Looking forward to seeing how it goes over the long term for you as I think we are both following similar strategies.

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The (uncited) experiment I’m referring to is discussed on p211 of “A random walk down wall street”. I presume it was the author’s own study.

That is what was done here, but it’s based on beta, so ought to apply to any real picks with the same beta.

In the experiment, stocks are picked randomly such that the average beta is 1, so it’s just as volatile as the market as a whole.

As they add stocks, the total risk drops. Most of the unsystematic risk is gone by 30 stocks, and it’s basically eliminated by 60. Now the portfolio will move up and down with the market as a whole. (Or if you go with a higher beta, it will be that much more volatile than the market.)

My recommendation is also to go with a broad-based index tracking ETF, but not just to start with. Forever. Why take additional risk?

Haha 2 cents always welcome.

I’ll be honest, I have been considering whether I’m exposed in banking and housing due to Brexit. But then I thought it’s so unknown and up in the air, I will wait until I see a confirmed negative trend.

I will start adding US Stocks as well soon so I’m not focused purely on the UK market.

Let me know how your portfolio gets on!

C.

Risk is a personal thing, willingness to accept additional risk in pursuing excess returns through stock picking is a decision that people need to make based on their own research and views.

If you believe that you can’t beat the market then it would be irrational to invest in anything but the index.

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I am currently holding AbbVie, AT&T and IBM as my US exposure in my income portfolio. Would be interested to see what comes up following your research, as I have struggled to find anything I really love.

AT&T and Boeing for me