How would you start a portfolio in today's environment

[Dividend Watcher]

Foodstamp, that is a tough question to answer without more specifics. You age? Is this for a retirement account (IRA or Roth) or a taxable account? What are your goals? Do you have a big lump sum to start with or are you planning to save a little at a time? Do you have the intestinal fortitude to watch your holdings drop in half and continue with your plans?

Without any of that above, I'll answer as if it were me under the age of 40 starting out with only a little amount of money but plan to save a little out of every paycheck in a retirement plan.

I disagree with starting out with a mutual fund or ETF for several reasons. 1.) If you are truly saving for the long term and planning to stick with it, you'll end up diversified enough to protect yourself from a company going kaput in your portfolio. 2.) You have no choice on what the fund purchases, sells nor what percentage of the portfolio each security holds. 3.) They skim off the management fee every year. You won't notice it but as the value of the fund grows, it gets bigger and bigger in dollar terms every year. A brokerage commission only happens once. 4.) The psychological effect of thinking you are protected in a market swoon. False! The fund will drop just as fast as the rest of the market and your portfolio. It doesn't take a genius to build an enduring portfolio on your own, on your terms, with less fees taken out over the long term.

The only time I'd want to include a fund was for something that is harder to research or the financial reporting rules are lax such as emerging markets. Since this is the Dividend Growth Forum, I'm assuming you're not planning to branch out into these riskier fields yet.

All that being said, I'd open an account with Fidelity or Vanguard since they're a mainstream brokerage with commissions a little below the big boys, TDAmeritrade & ETrade, but will reinvest dividends. ScottTrade has suspended the FRIP program for new accounts and the other brokerages I know little about. Loyal3 doesn't do IRAs as far as I can tell and you're limited on what you can invest in.

Save up your shekels and when you get to around $1000, buy one of the large dividend growth stocks and reinvest the dividends from day one. Make sure the brokerage has you set up to do that. I forgot once in my mother-in-law's account and missed the first dividend payment. When you're first starting out, I like DRIPping since it adds to your holdings without incurring fees. When the account gets larger, you can selectively save the dividends in cash for the next investment if you prefer but the compounding of dividends can really help the growth of your investment.

I'd suggest you start building up a core of 5 -10 great companies that will be the foundation of your portfolio for the long term. Then you can branch out from there. Try to get them when fairly or undervalued. You can find ideas on valuing them here and on Seeking Alpha.

My suggestions for this core are (ones that I think would be OK to buy now are bolded):

Healthcare - JNJ, BDX, ABBV
Energy - XOM, CVX, COP
Consumer Staples - KO, PEP, PG, CL, GIS, SJM, K, UL
Consumer Discretionary - MCD, WMT, GPC
Financials - AFL, TRV, RY, BMO, TD (the last 3 are Canadian banks)
Industrials - EMR, GE, UTX, PH, GWW, HON
Telecom - T, BCE (the last a Canadian telecom)
Info Tech - AAPL, MSFT, INTC
Utilities - SO, D, WEC, LNT, NEE

You asked why these? Because I think they are good, lasting companies that will reward the shareholders over the long term. Some are better values now but some will be better priced with a correction, recession or rise in interest rates but none will go broke on you.

Lastly, I'd recommend you introduce yourself in the Introductions section of DGF so we have a little more to go on. Welcome to DGF!