Leo Tolstoy wrote, "All happy families are alike; every unhappy family is unhappy in its own way."
I think you could say something similar of investment portfolios. The best ones are similar, while the worst ones fail for a variety of reasons.
One crucial difference between successful portfolios and the rest is getting the balance right between promising young companies and proven winners. With that in mind, here's how I would construct a hypothetical, tech-focused $50,000 portfolio.
Image source: Getty Images.
Netflix
To get things started, I'm going to allocate $20,000, or 40% of my hypothetical portfolio, to Netflix (NFLX -1.80%), a stock that is up over 63% year to date as of this writing.
Here's why I like Netflix: The company has proven that it's a fighter.
In 2021, it looked like the competition was cornering Netflix. Numerous entertainment conglomerates were launching their own streaming services -- Disney, Paramount, Comcast, and cash-rich newcomers like Apple were funneling billions into new content that threatened Netflix's market share.
However, three years on, Netflix looks as strong as ever. The company just reported a lights-out quarter (for the three months ending on Sept. 30, 2024), highlighted by:
- 15% revenue growth
- 30% operating margin (a new all-time high)
- $5.40 in diluted earnings per share (another all-time high)
The company has plenty of content that should drive high engagement in the months ahead, including something different for Netflix: Live events. The company will stream two NFL games around Christmas, and the Jake Paul-Mike Tyson boxing match.
Netflix has come through a turbulent period. Not only has the company survived, it's thrived. Investors should take note, and that's why Netflix is the first stock to make the cut for my hypothetical portfolio.
Next, I'm allocating $5,000, or 10%, of my hypothetical portfolio to Reddit (RDDT -1.81%).
Let's cut to the chase: Every portfolio needs a little bit of flair, and, for me, Reddit is the stock that brings it.
Reddit operates an online message board forum. It has subreddits for car repair to plant care and everything in between.
The company has been around for decades, but its stock debuted via an initial public offering less than a year ago, in March 2024. As of this writing, its stock has soared by more than 167%.
In many ways, Reddit is like a smaller, younger version of Meta Platforms -- specifically, Meta's main platform, Facebook. That's because Reddit is highly granular, with subreddits dedicated to specific interests and communities. That makes it an advertiser's dream come true.
In turn, Reddit is quickly growing its ad revenue as marketers rush to micro-target precise audiences.
In its most recent quarter (the three months ending on Sept. 30, 2024), Reddit announced revenue growth of 68%. Daily Active Uniques (DAUqs) surged 47%. The company reported net income of $30 million, up from a loss of $7 million in the same period one year earlier.
Granted, the data looks impressive. However, the reason I'm only allocating 5% of my hypothetical portfolio to Reddit is that the company does not have a long history of success. It's important to temper expectations with unproven stocks. That said, investors should keep Reddit on their radar -- this one could be a real star in the coming years.
Amazon
Finally, I'm allocating $25,000, or 50%, of my hypothetical portfolio to Amazon (AMZN -1.45%).
Simply put, I want at least half of my portfolio invested in a known winner -- and, without a doubt, Amazon is a winning stock.
Since its debut, Amazon shares have grown by 200,000%. On a compound annual growth rate (CAGR) basis, they've returned roughly 32% per year for almost three decades.
To put it another way, a $10,000 investment in Amazon made in 1997 would be worth $20 million today.
Granted, it's not reasonable to expect that level of growth from Amazon stock going forward. However, that doesn't mean Amazon is done growing -- far from it.
In the company's most recent quarter (the three months ending on Sept. 30, 2024), Amazon reported revenue growth of 11%, bringing its quarterly revenue to $159 billion.
What's more, the company's net income and free cash flow have surged to record highs under the leadership of CEO Andy Jassy. Amazon's timely investments in its fulfillment network are partly responsible for its increased profits, along with the company's expanding advertising business.
All told, Amazon boasts many of the aspects I look for in a major portfolio holding. It has solid growth, excellent profitability, ample free cash flow, and terrific leadership.
In short, it's the perfect stock to anchor my hypothetical portfolio for many years to come.
