The dust has settled after one of the most volatile market runs we've ever seen. But there's a problem: While the market is up about 60% in the past year, the indexes and mutual funds many of us count on haven't delivered much for more than a decade.
Maybe you're thinking it's time to take the next step: picking and buying individual stocks.
You know the risks. Those waters are full of sharks, even huge stocks can flame out, and you may have chased a couple of "hot tips" that cost you. But you also know Warren Buffett didn't make his money in index funds.
To help you get started, I asked several experts for good, solid names you won't be sorry to own, as least over the next several years. And I had them explain the wisdom behind each pick, so you can learn to fish for yourself.
I've pooled their picks into this list of the 10 stocks you should buy first for an ideal starter portfolio. Here's a look:
| Company | Recent price | Starter portfolio advantage | Dividend yield |
|---|---|---|---|
$53 | Strong brands | 3.3% | |
$61 | Strong brands | 4.3% | |
$54 | Economic "moat" | 3.2% | |
$45 | Economic "moat" | 4.8% | |
$520 | Long-cycle trend | n/a | |
$128 | Diversification | 1.7% | |
$49 | Big profits | 4.7% | |
$68 | Big profits | 2.6% | |
$39 | Dividend play | 6.5% | |
$40 | Dividend play | 3.2% |
We'll get to the whys in a moment, but first some basic rules:
- Don't bet the farm. Go into individual stocks with just a portion of your money -- say, 10% of your investment stockpile -- and start building gradually.
- Learn what makes a stock healthy. You'll find many tips from the experts below. My columns on "Dividends and 4 other investing keys," "10 investing basics from Buffett" and "What's a P/E? (And 9 other 'dumb' questions)" offer a lot more guidance on what makes a stock worth owning.
- Know the return you need. Set a goal like 8% to 10% returns a year on average, so you'll be disposed toward avoiding risk and making decisions. Your goal should not be "to make as much money as possible" or "get rich quick." Stocks are not lottery tickets.
Over time, you'll have to decide foryourself whether individual stocks will be a hobby, an important component of your investing approach or even your core strategy. That's the deep end of the investing pool, and it's not for everyone.
Meanwhile, here's why these are great stocks for a starter portfolio.
Powerful brands count
Professional money managers have dozens of sophisticated tools at their fingertips. But many of them spot stocks the old-fashioned way: keeping their eyes open and noticing what's hot."Everyplace I go in the world, I look at what's going on," says Don Hodges of the Hodges Fund (HDPMX), who has been investing for five decades. About a year ago he noticed that Steven Madden (SHOO, news, msgs) shoe stores were packed despite the sour economy. He did some research and then bought the stock in the upper-$20 range. It closed Tuesday at $44.53.
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Steven Madden
First, you're more likely to keep up with companies that make products you like. Second, this technique naturally leads you to powerful brands. Strong brands count in investing because when management stumbles (remember New Coke?), a company can rebound based on brand strength.
Indeed, you've probably already noticed how Coca-Cola (KO, news, msgs) dominates its field. That makes it suitable for a beginning portfolio, Hodges says. He also suggests Kimberly-Clark (KMB, news, msgs), which makes Kleenex and Scott paper towels, among other common household products.