I am trying to do the unthinkable. The improbable. The absurd. My goal? I am trying to beat the S&P 500 with an actively managed portfolio.
Background:
Hi! I am a millennial investor who is interested in dividend investing, FIRE, side hustles, and just about everything finance. I work in the healthcare industry in a product delivery role, which is pretty fulfulling for me and provides me a pretty good full-time income. Over the last few years I have saved aggressively into my retirement portfolio to set myself up to achieve financial independence.
As of this post, I have saved up about $34,000 in my Roth IRA portfolio. All of it has been through passive income investing in a Vanguard S&P 500 ETF (VOO) and I am thankful that I discovered investing so early. I have decided to take the next step (dumb step?) in investing and take a much more active hand in my portfolio’s management. I have closed my Vanguard account, moved my investments to M1 Finance and will be investing into
Before you ask yourself, yes I am aware of all of the studies that make it evident passive income investors do much better than 95+ percent of active money managers over time. Yet, despite all of the evidence, I think I can be one of the exceptions. I’ve created a Roth IRA portfolio in M1 Finance to do the improbable.
My goal is to beat the market, beat the market’s dividend return and to increase the dividend yield percentage on the amount I’ve invested from the time of my initial investment by the time my one-year experiment is over.
Goals:
- Beat the annual stock returns of the S&P 500
- Beat the annual dividend return percentage of the S&P 500
- Have a positive yield on cost in my investment portfolio
My Strategy:
I have a portfolio split into five distinct sections. Each section has its own purpose and its own strategy to deliver outsized returns for my portfolio. As somebody who works in the tech industry and specifically focuses on managing and delivering products, I’ve decided to take a product approach to diversifying my investments. Every company that exists sells products and every product has a life cycle.
Successful products have a product life cycle. That life cycle starts from inception, then the product experiences growth, maturity, decline and ultimately the product is no more. Any business has many of these products at one time, each at various stages in its life cycle. My strategy for this portfolio is to hit the sweet spot of product diversification. I want to pick the companies that are growing who have the highest potential for product peak, companies whose products have the longest amount of time they can be at peak performance, and companies who are in decline and stable but have the most potential to reinvest earnings into new products that repeat the cycle over again.
If executed successfully, this portfolio should lead to higher growth than the S&P 500 from the companies who have higher than average growth and a higher dividend as well.
The Portfolio:
Moonshot Growth (20%) – This group of companies has massive growth potential. Often overvalued and rarely carrying a dividend, these companies are high risk, high reward. I plan to diversify this section of my portfolio to many different companies with huge growth potential to spread out the risk a bit. However, I expect this
Growth 1st, Dividend 2nd (15%) – This group of companies I consider as part of the “growth” section of my portfolio. The only requirement for these growth stocks? They must have a dividend. This contributes to the overall portfolio dividend percentage to make sure that I am comfortably outperforming the dividend of the S&P 500. These companies are typically still in the growth phase of the
Growth + High Yield (30%) – This grouping is the heart of my portfolio. With this section of my investments, I have selected a group of companies who should overdeliver both on the dividend side and growth side of my portfolio. Theoretically, this group of stocks should be able to beat the S&P 500 on their own. These companies are close to peak performance, and I have selected a grouping that delivers both dividend and growth potential.
REIT (15%) – Another portion of my portfolio that I hope will overdeliver – Real Estate has been hit hard in 2020, and REITs have a lot of upside in this high-risk environment. Combine this with a notoriously high dividend yield and this portion of my Roth IRA should contribute nicely to my portfolio goals.
Stable Yield (20%) – if the Growth + High Yield slice is the heart of my portfolio, the stable yield portion is my backbone. These companies should not outpace the growth of the S&P 500, but they will overperform on the dividend. And, if i selected the right companies, maybe they will just direct their resources effectively into new products that deliver continued growth.
The Ground Rules:
I will select a portfolio allocation and lock it in on November 3rd, 2020. In will commit to not selling any of these company shares in my portfolio for one year.
In my industry, we call this “locking in scope”. Locking in the scope of my portfolio deters from last minute or in-flight changes that will detract from the overall strategy of my portfolio.
I hear you asking the question through the screen – what is in your portfolio slices!? Do not worry my friend, soon I will be revealing more details about my portfolio, the individual securities in each slice, allocation percentages, performance, and everything else in-between. Over the next year I am committed to sharing this portfolio journey with you and to be transparent through all of it.
Are you an aspiring amateur portfolio manager or just a passive income investor who wants to live vicariously through somebody else? Either way, I’ve got you covered. Thank you for reading and supporting my blog.
Roth and Roll Finance 