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Strategies & Market Trends : Dividend investing for retirement -- Ignore unavailable to you. Want to Upgrade?

To: Steve Felix who wrote (3842)	2/21/2010 7:53:17 AM
From: chowder	Read Replies (1) \| Respond to of 34328

I was assuming your daughter was going to continue adding to her account as opposed to buying two stocks and not adding future contributions. If she is going to continue adding, then holding two quality stocks isn't going to have the effect you provide in your scenario, with the understanding she will be adding to the account as she goes along. In my son's case, we started with one stock ... D. When he got the value up to $2500, we started on the next one ... PG. He continued to add and I have him up to about 15 holdings now. It didn't happen overnight, yet he's still diversified. I didn't want trading costs (based on 5 or 6 trades at once, with smaller amounts invested) to offset 6 months worth of dividends, and I didn't want to subsidize him out of my pocket (by paying the transaction costs) to force him to invest. I thought $2500 was a decent amount per stock initially. I suppose others can come to grips with an amount they feel comfortable with. Perhaps 5 positions at $1,000 each might be worth thinking about. I don't know. My son contributes monthly, so there is more of a comfort level with me. If he were paying me once a year, I would be more concerned. In any event, Cramer says 5 diversified stocks with regard to Mad Money. I'm assuming Mad Money is not retirement money. Josh Peters suggests a minimum of 13 stocks. In the book, "Dividends Still Don't Lie," by Kelley Wright ... he also says 13 stocks. However, he suggests building up to 25, which is what I'm doing for my son. I like the 25 number because if a PFE comes along down the road, he only has 4% of his portfolio at risk. He can overcome that. Hold just 5 positions and 20% of the portfolio is at risk when one company pulls a PFE. Keep in mind, he doesn't follow the market. For those who follow the market, they can hold fewer positions and overweight them. Most Focus Funds only hold about 25 positions as well. Kelley Wright says to own more than that and you might as well hold an Index Fund. I had about 32 on my wish list. I think I'll keep mine at 25 and if I wish to add one, one has to go. That way you focus on strength and quality. Everyone's goals and objectives are different so you have to do what makes you comfortable before you go to sleep. I'm not saying 50 or 60 is a bad number. I like 25 because I can own two in a sector like CTL and VZ ... PG and CL ... KO and PEP, BMO and WFC, D and DUK, etc. and keep it like a Focus Fund Model. In any event, I'd be curious to know what you decide to do. My 18 year old daughter doesn't have the cash flows my son does and she's limited financially (has a full academic scholarship to college and is focused on her school work). She has some money saved and I've been thinking about the best way to invest it since it's not a monthly thing where the cash keeps flowing in.