Green Dot Portfolio: Part 1 – Introducing A New Dynamic Portfolio – Seeking Alpha

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What is the Green Dot Portfolio?

When I decided to share my investment portfolio here, I found that many great combinations of “income”, “dividend”, “value”, “retirement” and so on were already taken for portfolio names by other Seeking Alpha contributors. So my Green Dot Portfolio name and logo were chosen as something that is easy to recognize and remember by readers. And while green is associated with profits and money, and “GDP” is of course our national measure of economic progress, I mainly chose Green Dot because it has another meaning for me ….

My Short Story and Goal as an Investor

I retired earlier this year from a 44 year career in the “green” fields of environmental management and sustainability, and so my interest and concern for our environment is central to who I am. I was fortunate to be able to devote the later years of my career to the health of forest ecosystems in the mid-Atlantic region. I especially love the outdoors, including travel with my family to our wonderful national parks and monuments. I spend a lot of my free time now planting and caring for trees.

I don’t have any formal financial credentials, but I have been an investor for more than 40 years. Now, this really dates me in a way that even makes me laugh – when I bought my first stock in my early 20’s, there were no personal computers or internet, and options were only being introduced for trading.

My life-long interest in investing was forever sealed when my local stock broker led me to some great gains in technology stocks such as Wang Computers and General Instruments (both long gone companies). Over the many years, I’ve done my share of trading stocks and some options, investing in mutual funds, and swing trading (trading stocks, options, and leveraged commodity Exchange-Traded Funds for profit over short time periods ranging from a few days to a few months).

Like most investors, I’ve made some great money, and I have lost more than I would want to admit, especially during those large market crashes over the past 30 years. In recent years I’ve read many articles here on Seeking Alpha and have done other research, which I enjoy greatly and have elevated to the level of a hobby. While I still swing trade a lot (average a few hundred trades a year), my desire in retirement is to also transition to a more longer-term portfolio, emphasizing growth and income.

Regarding my investment goals, I want to make money, to support my family comfortably through our retirement years, to leave accumulated wealth to our children and grandchildren, and to facilitate giving to others. I want investments of quality, safety, and growth. My overall target is to consistently achieve 8-10% returns per year.

Who Might Be Interested in the Green Dot Portfolio?

I’m constructing the Green Dot Portfolio for myself, but I’m sharing this for others to consider for any useful ideas, and to gain some feedback. I find that, when talking to friends and co-workers, many people have not put much thought or work into their financial future. My time here would be rewarded if my ideas and approaches can be of use to others.

My writing style for Green Dot will be fairly straight-forward, and hopefully easy to understand by the typical beginning-to-intermediate level investor. I won’t include a lot of financial analyses for individual stocks as that would be redundant based on the great in-depth articles by the many expert contributors on Seeking Alpha. I will focus on the mix of investments in the Green Dot Portfolio and the reasons for buying and trading. As Green Dot does not start with a “fixed” portfolio of investments, I intend to provide periodic updates on the continuing evolution of the Portfolio and its returns.

Core Concepts of the Green Dot Portfolio

The Green Dot Portfolio is built on several investing concepts and uses multiple investing tactics:

  1. Multiple Financial Asset Types – Unlike other portfolios that might consist of only a single asset type such as equities (individual stocks), mutual funds, or Exchange-Traded Funds (ETfs), or portfolios that are comprised of single sub-classes of assets such as stock REITs or high-yield dividend stocks, Green Dot includes common stocks (including REITs), preferred stocks and preferred stock ETFs, mutual funds, and Closed-End Funds (CEFs, which are fixed-income bond funds). Green Dot is therefore not an only-dividend, only-REIT, or only-anything else portfolio. So far, Green Dot has a very roughly-equal composition of common stocks/REITs, preferred stocks/ETFs, CEFs, and other components. The portfolio is also rather balanced regarding large, mid, and small caps as well as the fixed income positions. I have decided for the short-term to not include options but may consider that at a future time.
  2. Incremental Positioning – Green Dot does not start out with a fixed investment amount or purchase of a fixed number of shares of individual component investments. I started mostly with a post-retirement distribution from my 457 plan, and I have been adding positions slowly over the past few months. I will continue to add to existing positions as well as potentially sell some positions and add new holdings. Adding to existing purchases depends on whether a quality stock continues to a lower price level or moves lower with the overall market during a broader pullback. The portfolio investment should grow when I approach retirement RMDs in a few years.
  3. Position Size – I read about one portfolio that had something like 20% or more of the total investment in one position, and I was horrified. The Green Dot Portfolio has dozens of positions of rather small size each. This helps diversify the portfolio and – importantly – the risk. If any position has a bad day, week, or even quarter, I don’t panic about the overall impact on my total portfolio. Typically, a position at full level will represent less than 3% of Green Dot Portfolio. Many positions now only include the first purchase, which often is about $750. This keeps my commissions at a reasonable level per purchase, which at that level is 0.6% due to a discount I receive as a defined “active trader” with my on-line broker.
  4. Quality and Safety – The investments added to the Green Dot Portfolio come from recommendations from other Seeking Alpha and outside experts whose opinions I have come to respect. I also check all recommendations against multiple investment rating reports from national firms that are available to clients of the on-line broker that I use. I prefer investments that are well-regarded concerning their quality and, for dividend payers, safety. There are always potential differences of opinion about buying or selling any security – this is where experience, trading strategies, and rules apply.
  5. Value – I am always amazed at recommendations by others to buy stocks at their all-time or yearly highs – I instead am a classic value investor and wait for a pullback. I use simple technical analysis (primarily moving averages and support-resistance) indicators. I always look at a 3-chart layout that I have set on my on-line broker’s trading platform: daily chart for 2 years, 10-minute chart for 4 days, and a 1 minute chart for 3 hours. I always use limit orders for buying and selling positions. I have tried over time to develop more patience and wait for the trade to come to me, and if I miss it I can re-evaluate my price target or move on to another opportunity (that’s the swing trader in me).
  6. Swing Trading – While my Green Dot portfolio is designed to provide a longer-term source of growing income, there are sometimes good short-term opportunities that are too good to pass. For example, if I buy a 3% dividend-paying large cap and it shoots up >10% in a few days, I am likely to take the profit and move on, and consider re-buying it on the next dip. This is especially applicable to stocks that I am buying primarily because they are at extreme lows of their 1-year trading range. It is also most applicable for stocks that I might not have purchased otherwise (based on dividend yield) except that it was a good company at a good value. The same applies to a stock that reaches a new high in a defined historical trading range. I will cover this in more detail in the future, but for now let’s just say this is a bit of individual preference and investing style.
  7. Taxes – Finally, while I am not a tax expert by any means, my philosophy has been to defer my earnings as allowed/possible over the years in a 457 plan and to make maximum contributions to a Roth IRA account. The Green Dot Portfolio is in my Roth account, which means that I paid my due taxes up front and will reap the rewards of Portfolio’s investments tax-free forever after. Not having to worry about tax consequences of any particular investment allows me to further diversify my portfolio.

In addition, the mix of investment asset types allows me to match them to features that can add, overall, to safety, returns, or other benefits. This is my current reasoning for the asset mix:

  • Stocks – I sometimes look to add common stocks to the Green Dot Portfolio based on opportunistic trading circumstances. For example, if a sector is being beaten down, then adding leading stocks from that sector provides the opportunity for value investing for short or longer term profits. For the short term, this is when I would look to swing trade the stocks, take the profits, and move on to another sector that is rotating to the bottom. For longer term, I might add individual stocks that are simply great values even if not part of a sector rotation.
  • Preferred Stocks – I use preferreds primarily for exposure to the financial sector. There are many preferred bank stocks to choose from. Preferreds generally pay higher-than-average dividends and generally have a more narrow trading range, which helps to manage risk through lower volatility. I decided to choose preferreds primarily with call dates beyond 2020 so that I don’t have to be concerned about shares potentially being called. I therefore do not generally purchase common financial stocks.
  • ETFs – I use preferred stock ETFs to add more volume and diversity to my portfolio, especially to add exposure to global financials. These are also higher-yielding investments.
  • CEFs – I like that CEFs use some leverage to increase dividend yield. I like that, unlike mutual funds, CEFs have a fixed number of shares, which allows their price to be compared to their Net Asset Value. I tend to mostly buy CEFs that are trading at a discount to their NAV. So getting a CEF that pays upwards of a 5% dividend and is trading at, say, a 5% discount to NAV is a great way to add income and capital appreciation to the portfolio. This Portfolio is the first major addition of CEFs to my investments.
  • REITs – REITs are famous for their income stream via dividends. Many pay a monthly distribution, which allows compounding of returns when the dividends are used to purchase additional shares (dividend re-investing).
  • Cash – The funds allocated for the Green Dot Portfolio are currently not all expended. A 20% portion of the cash balance is being held for adding shares to a number of holdings during what I expect will be a general market pullback in the near-term. After that, a cash balance will be maintained at probably at least 2% to allow flexibility for adding to shares, new purchases, or swing trades.

As you can see, the Green Dot Portfolio is not really complex. It uses some rather common sense approaches that I expect will boost and maintain an increasing stream of income over time. It’s simple but true that one should never place all your eggs in one basket, and the Green Dot Portfolio is based on that concept, foremost, to help manage risk. Using an incremental approach, the Portfolio is well suited to anyone who is building a retirement investment portfolio over time. Adding swing trading can also potentially help boost returns by taking advantage of sharp but temporary price increases that the market might provide.

In Part 2, I will provide the current composition of the Green Dot Portfolio, including holdings, dates and shares purchased, and yields. Future updates will track performance and discuss reasons for changes to the “GDP” and respond as needed to any reader comments.

AND FINALLY…

If you found this article of interest and want to read more about my Green Dot Portfolio and my incremental, multi-asset approach to investing, please click the FOLLOW button.

I look forward to joining the Seeking Alpha community, to sharing my experiences, and to learning from others. Your feedback is welcomed!

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Additional disclosure: My opinions and strategies are not recommendations to buy or sell any security. Please remember to do your own due diligence before investing. If you want to receive updates on my Green Dot Portfolio, please click the FOLLOW button. Best wishes for your investing!

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