What’s up Profit Zone Gang!

Back again with another edition, and this one is going to be good.

A common question I get asked is how I would invest $5,000 right now.

So in this edition, I figured I’d tell you exactly how I would invest $5,000 as an investor with a moderate risk tolerance.

How I choose to invest may be different than how you choose to invest, but this is my personal preference for my current financial situation.

Let’s begin.

Step #1 - The Allocation

With $5,000, a strategic allocation becomes extremely important. You don’t want to spread yourself too thin (owning too many positions) but you also don’t want to put all of your eggs in 1 basket.

Now, some people may say “just put it all into crypto” and if you can stomach the volatility of the crytpo space and want exposure to what could be potentially massive gains (or losses) go right ahead.

My strategy with $5,000 is a lot different however. Because I believe in capital preservation, I believe in generating income from your investments and I also believe in exposure to growing/disruptive industries (crypto & tech).

Here’s how I would allocate $5,000:

• Dividend stocks/REITs - 30%

• Growth Stocks (disruptive tech) - 30%

• ETFs (S&P 500 + total stock market) - 20%

• Crypto - 15%

• Cash - 5%

These are just benchmarks. Meaning there will be times where your allocations to each individual group will be higher or lower than your benchmarks with respect to current market conditions. But it’s always smart to set benchmarks so you can rebalance your portfolio if need be.

This allocation gives you exposure to everything you need as an investor.

1. Income

2. Growth

3. Capital preservation

4. Crypto

Step #2 - The Foundation

If you’re reading this newsletter, chances are you haven’t started investing yet and you’re looking for some guidance, or you’re a new investor looking for some tips to get more out of your portfolio. If you identify with any of the above, it’s vital you build a foundation.

By “foundation” I mean ETFs that will increase your diversification as well as allow you to build slow but steady wealth. There’s peace of mind knowing that a chunk of your money is invested in something that is highly unlikely to become worthless over night.

For me, the foundation of my portfolio is built around 2 ETFs:

1. VOO (or VFV for Canadians) - An S&P 500 fund with a low expense ratio

2. VTI (or VUS for Canadians) - A total stock market fund that is incredibly diversified holding 4124 companies with names like Microsoft, Tesla, Facebook (Meta Platfroms), Amazon etc.

When you have a strong foundation to build off of, you can take more calculated risks with the other parts of your portfolio. But make sure your foundation is strong beforehand.

Step #3 - The Income

I’m a big believer in the following quote:

Reminding myself of this quote is what has made me stay consistent with dividend investing. And at only 24 years old I still have a lot of years of investing ahead of me, so why not get paid along the way?

I believe every well-balanced portfolio should generate some passive income. How much depends on your own personal preference, but I suggest aiming for a benchmark of around 30% of your portfolio at all times.

Of course with only 30% of your portfolio earning income, you can’t expect to be living off your dividend income any time soon but it’s a great start for someone who is just getting their feet wet. The extra income can either be used to reinvest into more shares or used to fund your ETFs. If you’re a bit more risk tolerant, you can even use your dividend income to fund your more risky crypto positions.

The choice is yours, but getting paid to be in the market is something every investor should take advantage of.

Step #4 - The Growth

Along with generating income, I also believe that every portfolio should have some exposure to growth stocks, more importantly distruptive technologies. Think industries like electric vehicles, payment systems, artificial intelligence, cybersecurity and e-commerce.

These 5 industries alone can make you a lot of money in the next decade if you can identify who will be a market leader.

To be completely transparent, I am a “dividend investor” but 55% of my growth portfolio (I have 2 portfolio’s) is made up of 2 positions that I am extremely bullish on.

These 2 are Square and Spotify.

If you aren’t comfortable picking individual stocks and don’t want to take on that much risk, you can always buy a tech-focused ETF and make that the growth portion of your portfolio.

Some choices:

• Vanguard Information Technology Index Fund ETF (VGT)

• Evolve’s Big Six FANGMA ETF (TECH)

• Invesco S&P 500 Equal Weight Technology ETF (RYT)

I’m personally a big fan of Vanguard funds because they are incredibly low cost and have been around for a while. They also offer a variety of funds to choose from. You can view the entire list here.

Step #5 - The Dry Powder

The dry powder. The boring yet essential part of the allocation. You’ll hear a lot of investors say you don’t need a cash position because cash should always be employed into the market and working for you. They’ll say that money on the sidelines is money going to waste. I somewhat disagree.

Having some dry powder is important in case the market randomly dips and you want to lower your cost basis. There have been times where the market fell rapidly and I didn’t have any cash on hand to take advantage of the discounts. After this happened a few times I made a promise to myself to always have a chunk of cash ready to be deployed into the market at moment’s notice.

Now whenever there is a dip in the market, I’m ready to pounce and scoop up more shares of my favorite companies at a reduced price.

Be careful with your cash position. There’s no use in having thousands of dollars sitting idle for too long. Your money can only work FOR you if it’s invested.

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Disclosures

The Profit Zone is provided by The Dividend Dominator. All opinions and views mentioned in this newsletter constitute my own judgments as of the date of writing and are subject to change at any time. Information within this newsletter is not intended to be used as a primary basis for investment decisions and should also not be construed as investing advice. Please keep in mind that investing involves risk, including loss of principal, and past performance may not be a predictor of future results. The Profit Zone, as well as myself, disclaim all liability in respect to actions taken based on any or all of the information provided.