Several Seeking Alpha authors have recently created model portfolios with their top investment ideas. For instance, Dividend Sensei from Dividend Kings outlined how to build a $1 million retirement portfolio generating $50,000+ in annual income. Another author, Rida Morwa, discussed constructing a $1 million portfolio based on his “rule of 42” and gave a bullish view on utilities in a recent article.
iREIT analyst on Seeking Alpha, Brad Thomas, discussed the approach of investing $1000 per month in the current market environment. However, Nicholas Ward has a different approach, and instead of focusing on yield-centric stocks, he prefers growth-focused investments, including non-dividend paying stocks. The analyst stresses that, according to him, given the current market conditions, the “growth” aspect will reign supreme.
Ward has a selection of stocks that he believes can create a reliable, long-term source of passive income that will grow faster than inflation. Notably, these high-quality stocks, driven by favorable market trends and attractive valuations, can not only provide increasing passive income but also outperform major market indexes.
This is an ideal time for creation of such a model portfolio, according to Ward, due to slowing trading activity attributed to budgeting for home renovations. However, he understand readers’ curiosity about his investment choices with more capital, so this portfolio showcases his top market ideas.
Investing $1 million in current environment
Investing $1 million may seem like a substantial sum, but it’s a relatable figure for many when considering their portfolios and retirement goals.
For instance, in late 2019, the Federal Reserve Board reported that the average US household net worth was around $748,800. Since then, the stock market has seen a 35% increase, and real estate values in most markets have also risen significantly. Given these factors, it’s reasonable to assume that the average household net worth is now likely around $1 million.
Majority of Americans believe they need around $1.27 million for retirement, and thus the concept of a $1 million portfolio resonates well with them, even though much of their net worth is in primary residences.
In 2022, NerdWallet published a study that reported lower average net worth figures compared to Ward’s estimate. The NerdWallet data shows median figures lower than the mean, given most of the wealth is disproportionately held by around 1% of Americans.
Therefore Ward’s model portfolio aims to cater to various net worth situations, offering diversity to meet the financial needs of the majority of investors, acknowledging that there is no universal one-size-fits-all solution due to varying financial situations.
Invest in companies with long-term growth
In contrast to recent articles by other analysts, Ward proposes an investment approach better suited for theoretical investors. The strategy emphasizes well-rounded companies with strong long-term growth potential rather than a collection of slower-growth, income-focused choices.
Most importantly, the author emphasizes the importance of diversifying one’s stock portfolio across various risk-return profiles, highlighting its significance in preventing financial insecurity during retirement.
It is important to incorporate companies with long-term growth prospects into one’s investment portfolio to combat the effects of inflation and ensure wealth and passive income continue to grow over time. This is a strategy that can work for anybody irrespective of their age, and it underscores the significance of using growth-oriented investments to safeguard wealth and the purchasing power of passive income during retirement, particularly in the face of rising inflation.
Stocks to consider in $1 million portfolio
For $1 million the analyst has a list of a well-balanced high conviction list that includes growth stocks such as Alphabet (GOOGL), Nvidia (NVDA), and Amazon (AMZN), alongside high dividend stocks such as thermos Fisher (TMO), Visa (V), and S&P Global (SPGI). Also, in Ward’s Portfolio, there are compounders such as BlackRock (BLK), Agilent Technologies (A), Honeywell International (HON), and Canadian National Railway (CNI).
Additionally, the portfolio includes defensive stocks Coca-Cola (KO), McDonald’s (MCD), PepsiCo (PEP), Waste Management (WM), and The Hershey Company (HSY), and cyclicals such as Deere (DE), Cummins (CMI), RTX Corporation (RTX) and Texas Instruments (TXN). High-yielders on the list include Enbridge (ENB), Camden Property Trust (CPT), Rexford Industrial (REXR), and Reality Income (O).
The stocks on the watchlist are from different categories and have an average upside potential of around 18.4%, excluding dividend yields. Some of these companies are considered undervalued based on personal fair value estimates, while others are trading with thinner safety margins.
Notably, the focus is on high-quality companies with long-term growth potential, even if they are trading at fair prices. Certain companies like SPGI and WM are highlighted as SWAN holdings due to their strong long-term growth prospects.
There are some blue chip stocks that Ward has not picked in the portfolio of 25 holdings because of current valuation concerns. Ward expresses a desire to add high-quality growth companies like Microsoft (MSFT), Moody’s (MCO), Mastercard (MA), MSCI (MSCI), or Linde (LIN) in the future if these stocks experience price declines. To keep this option open, he is leaving a few slots vacant and investing in money market funds.
Money market funds increase yield in one’s portfolio.
In the long run, the goal is to exchange cash for dividend-yielding stocks that consistently grow. However, because SPAXX currently offers a 5% yield, there’s no immediate need to make the switch. Having money market funds in the portfolio increases overall yield and provides peace of mind. The flexibility of cash is valuable, and this approach is also used in the personal portfolio for its risk-free yield and flexibility, making high-yield money market funds a welcomed addition.
All the mentioned stocks have strong credit ratings and a history of consistent growth, but Ward prefers investing in compounders for long-term gains rather than relying on mean reversion. These metrics are crucial for the portfolio’s SWAN (Sleep Well At Night) nature. Due to a recent market sell-off, the stocks are now in value territory, offering both potential for multiple expansion and strong fundamentals.
Additionally, most dividend-paying stocks in the portfolio have a history of increasing dividends for a decade or more, and the author anticipates further dividend increases in 2024.
The provided forward EPS CAGR estimate suggests a trend extending beyond one year. The mentioned stocks are all strong with robust financials and growth potential, making them suitable for a portfolio expected to yield consistent short-term and long-term dividend growth.
In conclusion, for investors seeking to invest in stocks, it is advisable to prioritize high-quality companies trading at fair value or better and hold onto them for the long term. This strategy facilitates the compounding of returns through rising fundamentals and annual dividends, potentially leading to sustained outperformance.
While there are no guarantees of outperforming the S&P 500 or Nasdaq in the next 5-10 years, the focus here is on stocks emphasizing perpetual cash flow compounding and generous returns to shareholders. These selected companies have a track record of success, and although the past cannot definitively predict the future, there is optimism in their continued performance.