Creating an Investment Plan – Long Term Strategy

So here is a little mental discussion I had with myself that covers off on my long-term investment strategy. 

Overall the goal is for financial independence and providing myself and my partner with a strong foundation and saving mentality that will create future wealth. 

I understand the most critical thing here is to create a mentality whereby you can save money, as I mentioned previously people make poor investment choices however the key is being able to save and to allocate money into investments in the present and future. 

Currently I have no exposure to global stocks at all, and this needs to change in order to get greater exposure to unrepresented markets in Australia and to minimise the portfolio risk via diversification of unrelated stocks (via a reduction in beta representing systematic risk). Seeing the Australian market is only 2% of the global share market we are currently missing out on a lot of investment opportunity. 

So my first thought was to the NASDAQ and NYSE which admitingly ignores some of the best markets out there. Below is a list of the top 10 exchange markets in the world and some of the largest companies that occupy the exchange.   

1. NYSE  (AAPLE)

2. NASDAQ (BANK OF AMERICA)

3.  Japanese Exchange Group (SONY)

4. Shanghai Stock Exchange SSE (PETRO CHINA)

5. Hong Kong Stock Exchange (TENCENT) 

6. Euronext (IBM)

7. London Stock Exchange Group (SMSN)

8. Shenzhen Stock Exchange (PING AN BANK)

9. TMX Group (ROYAL BANK OF CANADA)

10. Bombay Stock Exchange (RELIANCE INDUSTRIES)

When you compare some of the Australian shares that are currently in my portfolio they are miniscule in the global arena and therefore having an Australian focus can be a real detriment to overall performance. 

Having a global portfolio helps with diversification and can open you up to markets which are not strong performers within your local country e.g. technology such as Samsung would not be present on the ASX. 

So I then came up with the below portfolio which has a 50% split in international stocks and the remaining portions split equally between cash and local shares. 

Asset ClassStrategic Asset AllocationCurrent Holding 
Australian Shares25%$15K
International Shares50%
Cash 25%
Total100%$15K

In the future I need to further breakdown these categories into high growth, medium growth, and dividend yield shares. But that can come at a later date. 

So the plan over the next 24 months is to increase my exposure to international shares. Now the plan is also to invest under my partners name as I expect that she will be the low-income earner in the future (and sole beneficiary too), the alternative is a family/discretionary trust structure where you get the option of allocating proceeds amongst individuals. 

From here on in the article I wanted to discuss several portfolio options that I am just toying with at the moment. These will probably never get off the ground but are just a way for me to work out or come to a decision. 

Portfolio 1 

The first portfolio is US based stock portfolio that provides a quarterly dividend (which is the main focus of passive income and our wealth generation technique). In Australia large companies will generally not pay quarterly dividends unless they are an ETF or an alternate investment type.  Therefore by using these quarterly stocks it starts to provide more frequent payments into the portfolio that is never a bad thing. 

This below portfolio is based on 24 lots of $1,000 principal that pay dividends on a quarterly basis, resulting in an expected distribution payment of around $60 per month.  The benefit of the quarterly payment is mainly focused on providing adequate cash flow. There is certainly some large brands in this portfolio and will be able to obtain exposure into the US market at around 3% yield. 

TickerNamePriceDividend YieldMarket Cap ($M)InvestmentDividendPayment
CMCSAComcast39.462.13NYSE 1,000  21.30 Dividend paid January, April, July, and October
CMAComerica72.073.72NYSE 1,000  37.20 Dividend paid January, April, July, and October
FDXFedEx173.991.5NYSE 1,000  15.00 Dividend paid January, April, July, and October
HPEHewlett-Packard Enterprises 15.292.84NYSE 1,000  28.40 Dividend paid January, April, July, and October
JPMJP Morgan99.763.21NYSE 1,000  32.10 Dividend paid January, April, July, and October
NFGNational Fuel Gas60.442.81NYSE 1,000  28.10 Dividend paid January, April, July, and October
USBU.S Bankcorp48.283.07NYSE 1,000  30.70 Dividend paid January, April, July, and October
UGIUGI55.691.87NYSE 1,000  18.70 Dividend paid January, April, July, and October
ABBVAbbVie79.985.37NYSE 1,000  53.70 Dividend paid February, May, August, and November
AAPLApple191.051.53NASDAQ 1,000  15.30 Dividend paid February, May, August, and November
TAT&T31.076.57NASDAQ 1,000  65.70 Dividend paid February, May, August, and November
CATCaterpillar13.160NASDAQ 1,000  –   Dividend paid February, May, August, and November
CFGCitizens Financial31.774.03NYSE 1,000  40.30 Dividend paid February, May, August, and November
CVSCVS Health56.043.57NYSE 1,000  35.70 Dividend paid February, May, August, and November
NUENucur572.81NYSE 1,000  28.10 Dividend paid February, May, August, and November
VZVerizon Communications59.764.03NYSE 1,000  40.30 Dividend paid February, May, August, and November
AEEAmeren73.752.58NYSE 1,000  25.80 Dividend paid March, June, September, and December
CVXChevron123.093.64NYSE 1,000  36.40 Dividend paid March, June, September, and December
DFSDiscover Financial70.352.27NYSE 1,000  22.70 Dividend paid March, June, September, and December
INTCIntel53.262.31NYSE 1,000  23.10 Dividend paid March, June, September, and December
LRCXLam Research129.452.45NYSE 1,000  24.50 Dividend paid March, June, September, and December
MPCMarathon Petroleum61.33.46NYSE 1,000  34.60 Dividend paid March, June, September, and December
PSXPhillips 6695.983.33NYSE 1,000  33.30 Dividend paid March, June, September, and December
TGTTarget78.323.27NYSE 1,000  32.70 Dividend paid March, June, September, and December
 24,000  724 

Overall assessment of this portfolio – A 3% dividend yield is adequate but nothing special, being some large name entities with a lot of focus on continued growth being 2-3% dividend yields. Personally I feel much safer investing in these big brand companies over Portfolio 2 being entities that I have no idea what they do.  Being in Australia and having a tax agreement with the US, the dividends are taxed in America and then you get a rebate on your personal tax return for the already taxed component to ensure that you are not taxed twice. This is a simple administration piece and is fairly easy to get done – what I am trying to say here is it should not persuade anyone to not invest in American stocks. 

When I look at this portfolio I think to myself why invest in all these different shares when I can just get an index to track the largest xx amount of shares. This could make the whole administration and tracking side of things a lot easier and could eliminate some of the initial transaction costs to buy.  

I feel this portfolio certainly has some merit. 

Portfolio 2

Portfolio 2 is a similar based US portfolio that is mainly focused on monthly paying dividend stocks. These stocks are less known and are not mainstream however having a monthly dividend being paid is a different avenue that I wanted to explore. 

The fact that these stocks are less well known is my main concern, as I genuinely don’t know what they do and can see some dodgy management get a few of these invested amounts disappearing over the long term strategy.  If you were to buy these you would need to actively manage them that is not the strategy approach I would want to focus on. Therefore from the very beginning I am skeptical about this strategy and probably wouldn’t proceed with it. I feel given the higher returns offered in terms of dividend yield i.e. 25% dividend yield that it would come as a cost to long term capital appreciation. 

Regardless I think there could be a few good shares in here that would be worthwhile having in your portfolio that you could pull out. Pick the very best and ignore the rest. 

TickerNamePriceDividend YieldMarket Cap ($M)P/E RatioPayout RatioInvestmentDividend
LANDGladstone Land Corporation12.024.4217.137.6166.7 1,000  44 
VETVermilion Energy Inc. Common (Canada)24.818.53,766.5031.4266.3 1,000  85 
ORealty Income Corporation71.583.821,845.7022.484.6 1,000  38 
PBAPembina Pipeline Corp. (Canada)37.474.618,897.9021.397.2 1,000  46 
SJRShaw Communications Inc.20.774.310,092.5017.274.1 1,000  43 
STAGStag Industrial Inc.28.3953,199.6015.979.7 1,000  50 
CHR.TOChorus Aviation Inc.7.26.71,121.001599.9 1,000  67 
GAINGladstone Investment Corporation11.796.938614.9103.6 1,000  69 
LTCLTC Properties Inc.45.045.11,791.9014.975.4 1,000  51 
MAINMain Street Capital Corporation38.526.32,365.7014.892.6 1,000  63 
IPL.TOInter Pipeline Ltd.21.817.88,969.0014.3111.8 1,000  78 
RNW.TOTransAlta Renewables Inc.137.23,438.0014.1101 1,000  72 
EPREPR Properties75.125.75,665.101480.1 1,000  57 
GOODGladstone Commercial Corporation20.847.2632.413.194.2 1,000  72 
CLDTChatham Lodging Trust (REIT) of Beneficial Interest18.727874.812.184.8 1,000  70 
SUNSSolar Senior Capital Ltd.17.018.3273.51299.1 1,000  83 
GNLGlobal Net Lease Inc.18.3711.61,537.6011.9137.6 1,000  116 
PFLTPennantPark Floating Rate Capital Ltd.12.918.8500.511.8104.6 1,000  88 
ERFEnerplus Corporation8.281.12,003.6011.512.5 1,000  11 
APLEApple Hospitality REIT Inc.16.467.33,687.0010.979.3 1,000  73 
WSRWhitestone REIT11.869.6471.410.8103.7 1,000  96 
GLADGladstone Capital Corporation9.29.2261.110.899.3 1,000  92 
HRZNHorizon Technology Finance Corporation139.1152.910.797.3 1,000  91 
HCAPHarvest Capital Credit Corporation10.229.465.310.397.1 1,000  94 
SCMStellus Capital Investment Corporation14.169.2234.81092.1 1,000  92 
D.UN.TODream Office Real Estate Investment Trust24.3241,579.009.136.8 1,000  40 
PSECProspect Capital Corporation6.6310.92,424.508.491.3 1,000  109 
CPTACapitala Finance Corp.7.9712.6127.18.2103.8 1,000  126 
AGNCAGNC Investment Corp.18.02129,654.107.691.2 1,000  120 
DIR.UN.TODream Industrial Real Estate Investment Trust11.396.31,426.006.741.6 1,000  63 
ORCOrchid Island Capital Inc.6.7514.3326571.1 1,000  143 
GRP.UGranite Real Estate Investment Trust47.224.42,116.004.720.8 1,000  44 
DRG.UN.TODream Global Real Estate Investment Trust13.462,608.004.526.7 1,000  60 
CJREFCorus Entertainment Inc.4.444.2939.6-1.5-6.4 1,000  42 
SPB.TOSuperior Plus Corp.11.366.31,992.00-51.6-326.9 1,000  63 
CRTCross Timbers Royalty Trust12.154.572.8 1,000  45 
HGTHugoton Royalty Trust0.4425.217.6 1,000  252 
SBRSabine Royalty Trust46.37.2673.1 1,000  72 
SJTSan Juan Basin Royalty Trust5.6512263.8 1,000  120 

These stocks are much more riskier having a higher dividend yield across the total portfolio of $35,000 and yield of 8%.  This would result in a monthly payment of $253.  

I wanted to include another Portfolio being some more high growth US Stocks that instead of paying dividends reinvests the money (yield of 1% overall). In this instance there are some stocks that are over the $1,000 investment amount so this would need to be tweaked to include a higher amount here. 

Portfolio 3

This is the premium portfolio that focuses more on capital appreciation over dividend growth all on the NASDAQ market.  I genuinely feel safer investing in these big brand names over Portfolio 2 that could be anything really. Personally I would also want at least some interest in these below shares regardless of the other two portfolios. I feel they are long-term trending businesses that would be able to adapt over the next 20-30 years that is my timeframe.  Without looking into ratios of whether they are overpriced or not, or whether they are trading at 12 month high or lows I feel that I have an understanding of their business model and a personal belief in them.  As you can see from the dividend yields below, they pay next to nothing in dividends which is a sign of a growing company that needs money to invest in their operations. They have belief in themselves are in that growth stage which can generate capital returns for the investor. 

TickerNamePriceDividend YieldMarket Cap ($M)InvestmentDividendPayment
AMZNAmazon1,764.770NASDAQ 1,000  –   
FBNASDAQ164.340NASDAQ 1,000  –   
NVDANvidia177.50.36NASDAQ 1,000  3.60 
TSLATesla Inc264.530NASDAQ 1,000  –   
GOOGLGoogle1,207.650NASDAQ 1,000  –   
AAPLApple191.051.53NASDAQ 1,000  15.30 
MSFTMicrosoft117.051.9NASDAQ 1,000  19.00 
INTCIntel53.262.31NASDAQ 1,000  23.10 
CSCOCisco52.742.65NASDAQ 1,000  26.50 
NFLXNetflix361.010NASDAQ 1,000  –   
ADBEAdobe259.690NASDAQ 1,000  –   
COSTCostco237.560.96NASDAQ 1,000  9.60 
 12,000  97 

Timeline to get exposure into these markets

In order to get into each company at $500 per person (2 people investing into my fiancé’s name) she will be the low-income earner into the future the following calculations take place. 

$500 per week X 2 people = $1,000 per week. 

Roughly 12 products on the high growth portfolio, 24 stocks on the quarterly portfolio (36 stocks so far. Alternatively you could just put $36K into a ETF tracking the NASDAQ and probably get similar returns on 5% of the effort involved. 

Overall Conclusion 

As my experience into the share market continues, I can certainly see the advantage of just investing into ETF’s and indices. They offer incredible diversification and their results and maintenance are on autopilot. In terms of tracking all the dividends, it is going to be much easier to have the smaller number of holdings but at the same time I am conscious that making more money can take up more admin time and to not be against making things harder for myself. 

I would definitely like to get into the high growth US stocks that do not pay dividends as seen in Portfolio 3. I would also like to get into some of those quarterly dividend stocks and I would also like to maximize the percentage held in ETF’s/Indices. 

At the end of this article – I still haven’t come up with a investment strategy and I still have no idea what companies I should be investing in but I am having fun. 

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