How I'd Invest $20,000 Today if I Had to Start From Scratch

How I’d Invest $20,000 Today if I Had to Start From Scratch

Keeping things simple and straightforward usually pays off in the end.

How does the old cliche go? If I had known then what I know now? As is the case with all cliches, this one remains in circulation because it still makes a poignant point. It certainly still applies to most facets of my relatively long life, including my years as an investor. While I’m happy enough with my net results, the echoes of my past missteps still ring in my current portfolio.

With that as the backdrop, and based on a few-too-many years’ worth of accumulated wisdom, here’s what my portfolio would look like if I was just starting out with $20,000 worth of cash. Note the sheer simplicity and straightforward nature of these picks. Half goes into an index fund

There are no ifs, ands, or buts about it — I’d invest half of any new portfolio of any size in an index fund like the SPDR S&P 500 ETF Trust ( SPY -0.99%), trusting that over time the market’s inherent bullishness will do lots of heavy lifting.

This can be a tough idea for new investors to embrace; most newcomers feel confident they can beat the market by picking all the right stocks at the right time. Doing so certainly looks easy enough from the outside looking in.

Don’t be fooled though. Most highly active investors that do a lot of trading usually end up underperforming the market, even when those investors are professional stock pickers. Standard & Poor’s ongoing look at all large cap mutual funds offered to U.S. investors indicates that over the course of the past three years, 86% of them failed to keep pace with the S&P 500 . That proportion remains above 84% for the past five years, and for the past 10 years, 90% of large-cap funds made available in the United States trailed the S&P 500’s gains. It’s a testament to just how difficult it is to beat the market.

So, I’ll play the odds and simply be content with matching the market’s overall bullish performance.

The trick? Getting in and staying in, leaving this position alone for … well, basically forever (or until you need to start living on your gains). Step into foundational technology stocks

That being said, you don’t have to avoid individual stocks altogether. If you can maintain the same buy-and-hold discipline you’ll need to sit on the SPDR S&P 500 ETF Trust, you’ll be fine holding onto individual companies too. And if your ultimate goal is robust growth, technology stocks are a must-own.

Not just any tech stocks , however.

This is where so many new investors trip themselves up. While young or fast-growing technology names often create lots of hype, all too often the hype falls short of reality. Smart investors, however, tend to stick with proven technology names that are exactly the companies you think they are. More than that though, smart investors look for tech companies making products or providing services that are perpetually in demand, or they look for technology outfits that can adapt to a changing marketplace. To this end, I’ve long suggested the trio of Microsoft ( MSFT -0.20%), Alphabet ( GOOGL -0.58%) ( GOOG -0.36%), and Amazon ( AMZN 1.20%) as the perfect long-term exposure to the sector, and nothing’s changed my mind in the meantime. Again, the key is just leaving them alone.

As for an allocation, I’d commit 5% of my total portfolio value ($1,000, for this particular example) to each name. Consumer staples sidestep exaggerated volatility

While these three technology stocks are industry stalwarts, make no mistake — they’ll still occasionally dish out some sea-sickening volatility. You should own names with a little less ebb and flow too. Consumer staples names generally fit the bill. Unlike my top three technology picks though, I’m willing to swap out my staples stocks with new ones from time to time so I can own the names poised to lead for the foreseeable future. I’ve got two picks in mind right now in this regard.

One of them is Dollar General ( DG -1.31%). It’s seemingly no match for retail powerhouse Walmart . But a closer look at Dollar General reveals it succeeds by being everything and everywhere Walmart isn’t … literally. The bulk of its small, easy-to-shop stores are found in towns with populations of 20,000 or fewer people, where Walmart typically doesn’t establish a presence. With convenience and value quickly becoming more of a priority among consumers, Dollar General is well positioned for the […]

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