How Three Generations Can Build Wealth With 15 Stocks Each  | BY Keith Kaplan
CEO, TradeSmith |
There's no one-size-fits-all wealth building plan.
Everyone has different needs depending on what stage they are in life... different goals and priorities... and an endless number of other factors that are unique to everyone.
Just consider these three scenarios: - You may be reading this as a 22-year-old who just triumphantly grabbed their diploma and have four or five figures to your name, if you're lucky. You're working, but you want to make sure that money grows as fast as your career (or debt) and ideally faster.
- You might be 40 years old, parents to a troublemaking teenager with a big heart and even bigger ambitions. College is right around the corner, and you want to help them avoid being saddled with tens of thousands in debt... but you can't take on too much risk, either.
- Or maybe you're well into your 60s. You're retired, you're on Social Security, and you have some assets... but you're finding that you might soon have to downsize your home or your lifestyle to keep your head comfortably above water. You need a way to increase your income, and nothing risky is on the table.
I wouldn't dare to say each of these people should invest the same way. The risk tolerance and methods each should use are completely different.
Normally, creating an investing plan for your specific needs takes a lot of time and energy. Both those things are in short supply no matter where you are in life. Not to mention the knowledge to do this effectively.
That's why we at TradeSmith create software to help anyone take all that work and condense it into a minutes-long process.
And with my absolute favorite piece of software, Pure Quant, I can create an investment plan for any need with just a few clicks, as I'll do later on in this article.
Pure Quant uses our proprietary algorithms to create a personalized mix of assets that you can buy with a set amount of starting capital, right down to showing how much you should buy of each.
You can weigh it toward riskier assets, lower-risk assets, dividend payers, and a whole lot more.
So that's what we'll do here. Using the Pure Quant software, I'll design a quick model portfolio for each of the scenarios above, and I'll explain how and why I constructed them that way.
If one of the above matches where you're at, pay close attention today. And if you know someone in a similar situation, forward this email along to them. Before You Begin I've said it before, and I'll say it again and again until I'm blue in the face.
No investment journey can truly begin until you're free of high-interest-rate debt.
Debt of this kind is the ultimate wealth-killer. There's no consistent, reliable way to outpace the interest you'll accrue on a 20% or 30% APR credit card by investing or trading. Especially if you're just getting started. Period, end of story.
I get the temptation. You hear stories about people making it big on one trade, and you know that if you could too, you would eliminate all your debt in one fell swoop.
Of course it's possible. It's also extremely unlikely... and risky.
Because if you don't make that big score – and worse, if you lose money – you wind up in an even more dire position than you started.
I cannot emphasize this enough – any debt that's not a mortgage, a student loan, and in some cases a car loan should be paid off before you put any active money to work in the markets. |
Three Generations of Wealth Planned With Pure Quant 1. Stock Portfolio for an Investor in Their 20s
Let's start with the 22-year-old and assume – maybe optimistically – that they have $10,000 to invest. Maybe from a graduation present.
At that stage of the game, you have the most risk tolerance you'll ever have in your life. The time to make mistakes and shrug off a few losers is right here.
These are also the best long-term compounding years of your life. Consistently buying a group of great stocks now will pay off massively down the line.
Now, while you should be tolerant of some risk at this stage, you also don't want to lose EVERYTHING if the market turns on you. You shouldn't be all-in on risk. You want a mix of high-growth assets and some more stable, dividend-paying assets you can rely on, so compounding can work its magic.
I would also say that bond exposure is not really a priority at this stage — even with bonds paying some of the best yields in years.
Again, this is the time where it's most acceptable to take on risk. Bonds are risk-free, so we're leaving them out. Although short-term Treasurys are not a bad place to stick some emergency savings. (Note: Your 401(k) and other retirement accounts are a different story, of course. We're talking about your active investing today.)
So, with our guidelines in place, let's go over to TradeSmith. I used Pure Quant to create this model portfolio for our 22-year-old: 
This is a mix of stocks in the S&P 500 and Nasdaq 100. This mix gives you a good chunk of exposure to high-growth tech that's balanced with stocks in the energy, industrial, and consumer discretionary sectors.
All of the stocks recently entered the Green Zone — our proprietary measure of positive momentum. This is a key thing. You want to buy stocks with a recent breakout from a downtrend, as it's a powerful omen for continued upside.
Now, a bit of nitty gritty: - Very importantly, all the stocks above have at least 5 million in daily trading volume worth at least $10,000,000, making them liquid enough to trade should you want to. If you screen for stocks with smaller volume than this, you'll occasionally start to see some unknown and thinly traded names pop up.
- The Average Volatility Quotient of all these names is between 30% and 70% — a decent middle ground. There's enough volatility that the stocks have a better chance of beating the market... but aren't so volatile that they're likely to turn on a dime at any given moment.
This is the kind of portfolio I'd recommend to a younger person. It has an appetite for risk, but it's well diversified to help mitigate those risks. It's not so conservative that the stocks don't move. And each position has the appropriate exposure for the inherent risk at hand.
With $10,000, a younger person can start with a portfolio like this and enjoy the best compounding years they'll have.
Now, let's move on to our next generation of wealth... Stock Portfolio for an Investor in Their 40s For this, we'll want to make a few key changes. We have more responsibilities and different goals in our middle age, so we should tolerate less risk.
We'll keep the volume numbers the same but change the range for the Average VQ to between 30% and 50%, giving an overall less risky mix of assets. We'll swap out the volatile Nasdaq 100 stocks for the S&P 400 mid-cap index, which contains only profitable companies. And of course, you probably have a bit more money to invest – let's say $50,000.
Here's what we get: 
You can see some differences between this portfolio and the above. It's still well diversified, but we're looking at larger-cap stocks with lower overall volatility. It's an appropriate level of risk for someone at that age.
I should also note that someone at this stage in life should have a good amount invested in U.S. bonds – especially short-term Treasury bills, which are paying out the highest yields in many years. When yields are high, like right now, I'd recommend an allocation of about 25% bonds. If yields start to fall quickly, you might want to reduce that to 20% or lower.
Again, this is up to you and your personal risk tolerance. It's one of those factors I can't pin down for you. I can only give general guidelines. If you're more risk-averse, keep a higher mix in risk-free Treasurys.
Finally, let's get to the retiree. Stock Portfolio for an Investor in Their Late 60s Here's where things really change.
We need to do two things here. We need to be much more risk-averse and we need to optimize for income.
For that, we want to invest in dividend payers and growers with low overall volatility.
Let's take the Average VQ down to less than 40% and select our Green Profitable Dividend Growers screener, which will find profitable companies that are growing their dividends and trading with positive momentum.
We'll search for U.S. stocks in the S&P 500 and Dow Jones Industrial Average and assume we have $100,000 to invest. 
All of the companies above pay and grow their dividends over time, which is a fantastic quality to target for investments in retirement. They've also all recently entered the Green Zone – which makes it a good time to buy.
U.S. Treasurys are even more important at this stage. You want a larger portion of your portfolio in stable, unsurprising assets should you suddenly find yourself in a situation where you need cash. As a retiree, consider a Treasury exposure of anywhere from 30% to 40%, depending on how much stable income you need. Navigating Your Financial Journey No matter where you are in life, investing is tricky. I've devoted my life to making it a bit easier for people with TradeSmith and our software tools.
In a perfect world, what we create with portfolios like the Pure Quant examples I've shown you here today will prove to be better than an expensive financial advisor who will give the same cookie-cutter advice to anyone.
Of course, we can't account for every situation today. But I hope what we have done gives you a guiding light for the kind of stocks you should be looking for at whatever stage in your wealth journey you happen to be in. We'll stay in touch here at TradeSmith Daily with more insights and ideas for you along the way.
All the best,  Keith Kaplan
CEO, TradeSmith |
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