The Goals of a portfolio
People have many different ways they view and setup their portfolios to accomplish the goals they set out for it. Some people concentrate on capital gains, allowing their shares to appreciate in value over time, and then selling them as needed, this can be done for income or re-balancing purposes.
The goal I set out for my portfolio is to grow itself at a steady pace alongside growing its cashflow. Cashflow in a portfolio can be generated a number of ways including interest, dividends and realized capitals gains. For the cashflow in my portfolio i rely on dividend paying stocks.
Why Portfolio Cashflow Is Important To Me
Cashflow is important to my portfolio as it allows it to grow and expand into new companies on its own. For example, if Unilever pays me £200 in the form of a dividend, a portion of that will be re-invested into buying more shares of Unilever, therefore increasing my holding in the company and increasing the future dividends they pay me. Where as the rest will go towards buying up a new company i have chosen to add to my portfolio, therefore adding even more cashflow to my portfolio in the form of dividends.
How My Portfolio Is Setup
My portfolio uses a tier system consisting of 3 tiers.
Foundational Tier ---> Mid Tier ---> Lower Tier
Every tier of the portfolio consists of different levels of investment. For example the foundational tier consists of stocks that make up larger portions of the portfolio, for example each company within the foundation tier can have up to £5000 - £10000 worth of shares. where as the mid tier would hover around £1000 - £3000. And lastly the Lower tier can be as low as a few hundred around £500 - £700.
This allows different tiers to house different types of investments. Lower tier could be more risky stocks , mid tier can consist of healthy growing stocks and the Foundation Tier is made up of blue chip companies.
Once a company reaches the foundational tier in my portfolio, it generally begins splitting its dividends into buying up more of itself as well as buying up new companies or buying up more shares in my mid or lower tier companies. where as mid tier and small tier generally re-invest into themselves.
When i invest my own money into the portfolio it generally gets split between the mid to low tier stocks. This however can change if i see a foundation tier stock is undervalued in my opinion.
The tier system allows me to diversify my money over several risk factors and gives me plenty of opportunity to watch how a lower or mid tier company grows and handles itself before they reach the foundational tier in my portfolio. By the time a stock reaches the foundational tier i find myself knowing a great deal about how the company operates and feel very comfortable with it as an investment.
The more companies that reach the foundational tier the faster i am able to grow my positions in other companies due to the increased cashflow of the portfolio. In this way i am able to grow my portfolio as a whole keeping my money relatively safe spread across an increasing growing number of companies.