Update to the 5 Stock Portfolio

Disclaimer:

***I own all 5 stocks mentioned below.  Also, the following is not a stock recommendation.  I don’t know you or your situation.  Stock investing is supposedly not for everyone and involves risk.***

Last July, I wrote about A Basic 5 stock Portfolio for Beginners and argued and showed that a simple and boring portfolio of just 5 stocks could meet or beat the S&P 500 in the long run.

This is a little bit of an update to that article to check on the 5 Stock Portfolio to see how it’s holding up.

The 5 Stocks Portfolio consist of: Altria (MO), Johnson & Johnson (JNJ), ExxonMobil (XOM), Procter & Gamble (PG), and 3M (MMM).  For info on each company, read last years post.  For simplicity sake, I’ll just assume an equal weighting across the 5 stocks.  In other words, 20% allocation across the 5 stocks.  For simplicity sake (like last year), I’ll just assume an equal weighting across the 5 stocks.  In other words, 20% allocation across the 5 stocks.

So How Do These Companies Look As A Portfolio Updated

So on the above table, you can see what the average returns, portfolio dividend yield, 10 year dividend growth rate, and beta for the 5 stock portfolio.  All figures based on the 10/13/2017 closing values.   Again, assuming an equal weighting of 20% among the five holdings.  This leads us to:

Comparing the 5 Stock Portfolio vs the S&P500

Now lets compare the snoozer portfolio created above to the S&P500 index:

So the last year was not a good year overall for the 5 stock portfolio compared to the S&P500.  XOM has been a drag on the portfolio due to oil prices largely hovering in the upper 40’s/low 50’s.  MO took a big hit late this last summer due to an announcement the FDA would push for lower nicotine levels in cigarettes, and PG is actually having a decent year for the type of products it sells and some recent attention over a boardroom battle.  JNJ and MMM had some pretty nice returns.

While the last year has not been kind for the 5 stock portfolio, it still manages to beat the S&P500 over the longer term of 5 and 20 years.  Also, those returns do not reflect dividends.  The 5 Stock portfolio easily has a higher yield than the S&P500 by just over one percent.  It should also be mentioned that all five companies have at least 35 consecutive years of dividend increases and an average 10 year dividend growth rate of 9.16%, which would have easily equated to more than doubling your dividend income.  It should also be mentioned for the quants, the 5 Stock Portfolio is about 1/3 lower risk when measured by beta.

Conclusion

Despite the underperformance over the course of the last year, I still think this is a pretty basic and easily understandable portfolio for someone looking to get into buying stocks.  The numbers are still showing the portfolio outperforming the S&P500, however at a lower rate than the last time the portfolio was reviewed.

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Readers Comments (6)

  1. I didn’t realize 3M was that good. A couple newsletters I subscribe to have been recommending 3M again as of late since they are a great blue chip. 3M and JNJ are two stocks I wished I would have purchased a few years ago but ended up going with mutual funds for the diversification and also bought PG.

    • Yes, they are much more than just a post it notes company. I have to find where they say their goal is to have a large percentage of revenues come from new products. Can’t find it anymore, but it the percentage was a pretty high goal. I guess it’s working.

  2. “simple and boring portfolio of just 5 stocks could meet or beat the S&P 500 in the long run.”

    I think you need to rewrite this to “…under-perform, meet or beat…”

    It’s hard to beat the efficient market theory. Just stick with a low cost passive index fund like Vanguard offers and you will beat 80% of active investors. But, don’t take my word for it google any and all advice from Jack Bogle, the inventor of the indexed mutual fund and founder of Vanguard.

  3. I want 3M but the price for the stock just feels so far out of reach in comparison to a fund mimicking the SP500.

    • I’d wait for a pullback. They were recently at 200 a few months ago. But I’m with you, most everything seems a bit rich to me. Crazy market. If the tax reform goes through, there could be more upside though as it favors companies who will most likely increase dividends a d buybacks.

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