One of the best ways to build capital for the future is through investing, but you have to know how to navigate the vast landscape first to mitigate associated risks. Among the safest investment opportunities are dividend stocks, but that doesn’t mean they come without any risk. Below, we will tell you everything you need to know about building a dividend stock portfolio.
What is a Dividend Portfolio?
A dividend portfolio is simply a record of all dividend-paying stocks you invest in, and the aim is for it to be as diversified as possible. Although you can have investments in other assets including alternative stocks, cryptocurrencies, and real estate, they won’t have anything to do with your dividend portfolio.
How to Get Started
Investments in the right dividends allow you to bring in passive income, which can be a great way to survive bear markets while providing you with profit for the future.
How your dividend portfolio is structured will largely depend on your goal. Are you saving for retirement? Do you want a monthly income? Are you saving for a deposit? These are all common goals that investors have, and dividends make up part of a wider strategy.
A good figure to start investing with is $1,000, but you can opt for lower if you wish. Once you’ve sourced your investments, you’ll be paid a monthly sum by all of them, which may become a substantial amount when you combine your entire portfolio. If you need help understanding the value of holding onto dividend stocks, check out the calculator by following the link.
How to Turn $1,000 into a Strong Dividend Portfolio
You’ll most likely have a lot of questions swimming around your mind about how to choose dividend investments and how many you should have in your portfolio. Before you start compiling a list of 30 different stocks, let us tell you that the best investors know how to KISS (Keep it Simple Stupid).
The best way to break down your starting $1,000 is to divide it by 10, which will give you 10 dividend-paying stocks with $100 invested. Although this may not feel like a lot to invest in a single dividend, you’ll be surprised how much diversity you can squeeze into 10 stocks. Additionally, seeing as there are only 11 primary sectors, you will pretty much cover them all.
Understanding Fractional Shares
Making sure you’ve got a suitable selection of dividends can be tricky, especially when you’re getting started. For instance, you may want to invest in a strong company like Apple, but you may not know which other stocks will keep the portfolio diversified.
Let’s imagine that the stock price for a large company was just over $500,000. Having one of these shares would be too much for a beginner investor, let alone getting your hands on 10. Luckily, you don’t have to buy full stocks thanks to fractional shares, meaning you will own a small portion of the $500,000 stock – like 0.1.
Balancing a Dividend Stock Portfolio
Having a well-balanced portfolio is essential for success. Instead of putting all of your eggs in one basket, spread the risk over various different economic sectors including:
- Healthcare
- Information technology
- Industrials
- Financials
- Energy
- Communication services
- Consumer discretionary
- Utilities
- Consumer staples
- Materials
- Real estate
When you first get started with your $1,000, a good way to balance is by choosing a stock from 10 of these sectors.
Even though there’s much more for you to learn about dividend stock portfolios, the information outlined above will be more than enough to get you started.