Top Picks for Investing $50,000 in the Current Market
In the world of investments, building a well-diversified portfolio is key to managing risk and maximizing growth potential. A practical approach for a $50,000 portfolio with just three stocks is to invest in broad-market exchange-traded funds (ETFs) or index funds that together cover the U.S. stock market, international stocks, and emerging markets.
One of the three stocks in our hypothetical portfolio is AT&T, a company with roots dating back over a century. Currently, AT&T is refocusing its efforts on wireless and fiber businesses. The company offers a solid dividend yield of around 4% and has a reasonable valuation with a price-to-earnings (P/E) multiple of 16. However, it's important to note that there is a risk associated with AT&T due to its significant net debt of over $123 billion.
The second stock in our portfolio is Rocket Lab, a company founded in 2006 and debuted on the stock market in 2021. Rocket Lab is focused on the space economy, providing orbital launches for governments and businesses. The company has launched about 65 missions so far and plans to greatly accelerate this number in the coming years. Rocket Lab is aiming to reduce the cost of launches, similar to privately owned rival SpaceX, but it's important to note that Rocket Lab has not produced any profits as a public company and has lost over $200 million in the past 12 months. Due to its lack of current profitability and speculative nature, a conservative approach is recommended for investing in Rocket Lab stock.
In our hypothetical portfolio, $2,500, or 5%, is proposed for Rocket Lab. On the other hand, AT&T is allocated $20,000, or 40% of the portfolio.
Meanwhile, Alphabet, the parent company of Google, generates a significant portion of its revenue from its Google Search business and has the third-largest cloud services business, trailing only Amazon and Microsoft. Alphabet is considered a best-of-both-worlds stock, offering excellent fundamentals with solid growth currently and future potential from its innovative segments, such as autonomous driving through its Waymo subsidiary, quantum computing, and numerous artificial intelligence (AI) initiatives. Alphabet has a market cap of $2.3 trillion, making it the fifth-largest American company. In our portfolio, Alphabet has an allocation of $27,500, or 55%.
Google.com and YouTube.com are the two most visited websites in the world, accounting for 113 billion monthly visits combined. Alphabet generated $370 billion in revenue over the last 12 months, primarily from its Google Search business.
While pure stock ETFs do not cover bonds or real estate, they maximize diversification within equities for a small number of investments. By using broad market ETFs covering U.S., international, and emerging markets, and allocating approximately 60% U.S., 20% international, and 20% emerging markets, you can create a well-diversified equity portfolio with just three stock ETFs. This mix covers large-, mid-, and small-cap U.S. stocks plus international developed and emerging companies, balancing risk and growth potential.
In conclusion, a well-diversified portfolio with only three stocks can be achieved by investing in broad market ETFs covering U.S., international, and emerging markets. The proposed allocation for our hypothetical $50,000 portfolio is approximately 60% U.S., 20% international, and 20% emerging markets. This approach offers strong geographic and sector diversification with just three holdings and reflects a moderately aggressive allocation commonly recommended by investment guides.
- In the world of finance, investing in stocks like AT&T, Rocket Lab, and Alphabet can contribute to a well-diversified portfolio, with each company offering unique potential.
- The refocused AT&T, with its solid dividend yield and reasonable valuation, accounts for 40% of our hypothetical $50,000 portfolio, demonstrating the importance of established companies in balanced investing.
- Rocket Lab, with its focus on space economy and aggressive expansion plans, makes up 5% of the same portfolio, highlighting the role of emerging technology stocks in diversification.
- Alphabet, the technology giant behind Google and numerous AI initiatives, constitutes 55% of our hypothetical portfolio, showcasing the potential growth and risk associated with innovative companies in the finance realm.
