How I'd Make a Recession Investing Wishlist (and what to do if you don't want one)
Did you invest during the last few weeks of stock market turmoil? Are you worried that you might have missed your chance??
If you’re a long term investor and your portfolio is comprised mostly of ETFs like one S&P 500 index fund, one technology fund and one dividend fund and you’re checking the market volatility thinking there could be some opportunities here to branch out and own some individual stocks, but you’re not sure how to begin, this post is for you.
Most financial advisors think you should consider a foundation of $30,000 spread across the three ETFs mentioned above before buying individual stocks. This could mean $10,000 in each, or you could consider structuring the money in a way that works best for you.
The benefit of having a solid foundation means once you have developed consistency and are investing every month in these funds for hopefully the next 10-30 years, you can have some fun and buy some individual stocks.
Now, it’s time to add some individual stocks. You can take on a little more risk here, because in theory, your individual positions won’t outweigh the safe ETFs. It allows you to have a little fun here buying some individual companies that you maybe really love without too much risk to your portfolio.
A wish list could be designed by sitting down with a pen and paper and thinking about what companies you USE. I’ll use myself as an example:
Let’s think about food first.
I eat at CAVA a few times per month. I also eat at Chipotle occasionally. Sometimes I even go to McDonald’s.
I’m a minimalist, so I don’t buy a lot of stuff, but I do stream movies on Amazon Prime. And I also have a Netflix subscription. And talking about streaming, I listen to Spotify all the time.
Since we’re on the topic of technology, I have an iPhone and I practically live on that thing and my MacBook. And I know Nvidia is a chip manufacturer that is used in a lot of smartphones. I also have an XBOX, and I know they’re owned by Microsoft.
And while we’re talking about brands, even though I’m a minimalist, there still are some brands I am aware of. My girlfriend uses ELF skincare products all the time. And a lot of my neighbors have pets and get everything they need from Chewy. Not to mention, all this stock market volatility is giving me heartburn and the Pepto is made from Procter and Gamble.
Now I’ve got a little list here that I can research. Maybe there are some big deals to be had and I can buy a few investments with some money I had stashed away for fun. The next question is: When do I buy them? Don’t overcomplicate things or wait wait wait for the perfect price. Just do like you do with your regular investing and scale in over time.
If they’re particularly high risk investments, maybe you don’t want to throw good money after a bad stock too much. If they’re quality, you might opt to add more on bigger down days. The call is yours.
If all this sounds daunting, or you don’t want to be that involved with your investments, then sticking with ETFs is completely fine.
Here’s how I’d personally structure my portfolio if I were new to investing. Obviously this is not financial advice, this is one one option of many to consider:
Open a Roth or Traditional IRA and an individual brokerage account.
The Roth is for retirement. I won’t touch it until I’m 59.5. The individual account is so I can invest more than the maximum of $7,000 for the Roth AND so I can hopefully retire earlier and tap into those funds until I’m 59.5
Max out the Roth in a technology focused ETF. FTEC/XLK/VGT are options. Only one is needed.
Invest in an S&P 500 ETF like SPLG/VOO/SPY and a dividend ETF like SCHD/SPHD/SPYD. Again, only one of each is needed.
The reason I would consider putting the tech ETF into the Roth is to avoid the biggest tax bill possible. Many investors also consider putting all three into the IRA, but this gives you smaller positions in all three. I would personally opt to grow a large position in a tech ETF and then pay taxes on the S&P 500 and dividend ETF.
If I was assembling a recession wishlist in addition to the three ETF plan, I’d also consider putting those in the individual account.
