Here’s how you can design your own investment portfolio using your favorite brands – CNBC

As consumers, we all have certain brands we enjoy using more than others — publicly traded businesses like Starbucks and Costco are some of my favorites, for instance. But what if, in addition to patronizing these businesses, you could also build an investment portfolio around them? 

Select details how you can invest in the businesses you’re already spending money with, plus a few tips to keep in mind when purchasing individual stocks.

Whether you’ve recently started investing during the meme-stock era or you’re a long-term investor who’s been doing this for a while, there are plenty of ways to continue building your net worth through the stock market.

While investing in your favorite companies may be fun, it’s worth noting that your entire investment portfolio should not just be based on picking certain individual stocks. Many investors would recommend using a 90/10 strategy, where 90% of your investment portfolio is dedicated to less volatile index funds tracking the overall average return of the market and the remaining 10% being dedicated to individual stocks.

The thought is that 90% of your investments will return a steady and solid return over the long run, while the remaining 10% can afford to be a bit more volatile. Think of it this way: worst case scenario, if your 10% allocation plummets in value, this sudden dive would not have a huge affect on your overall financial well-being.

Some investors even prefer to create their own mock Exchange-Traded Funds, or ETFs — buckets that include several different securities — and name these investments after people with similar purchasing patterns, hobbies and likes. For example the Becky ETF, an ETF simulation that tracks a fictional index called the Becky 10 index, contains:

• Adobe Inc. (ADBE)
• Apple Inc. (AAPL)
• Chipotle Mexican Grill, Inc. (CMG)
• Etsy Inc. (ETSY)
• Facebook, now known as Meta Platforms Inc. (FB)
• Lululemon Athletica Inc. (LULU)
• Netflix Inc. (NFLX)
• Pinterest Inc. (PINS)
• Peloton Interactive Inc. (PTON)
• Shopify Inc. (SHOP)

The performance of this particular portfolio is nothing to scoff at. Between Jan. 2015 and Dec. 2020, the cheeky-named ETF gained a whopping 1,079%, while, in comparison, the plainly named S&P 500 index ETF gained just 84%. Additionally, in 2021, all but two of the included companies, Pinterest and Peloton had a positive year.

However, 2022 hasn’t been so kind to investors. The Becky ETF 10 is down 35% since the start of the year, and the biggest ‘loser’ being Shopify is down over 60% in 2022. However, the S&P 500 is only down 13% this year. This is because the S&P 500 index has a much larger exposure across sectors and businesses, while the Becky 10 ETF is more risky and less diversified, as one investment can drag down the entire performance significantly.

You’ll notice though that this ETF includes a mix of tech-forward companies like Facebook and Apple along with consumer brands like Lululemon and Chipotle. Should you decide to create your own portfolio based on your favorite brands and companies, diversifying your investments in different sectors is a solid way to go about it.

Another famous ETF that regularly catches headlines is ARKK (a real and tradeable ETF), run by Cathie Wood, a famous investor and stock-picker. The fund chooses companies to invest in with the common theme of “disruptive innovation.” It’s largest holdings of the portfolio at the time of publishing are Tesla (10%), Teladoc (6%) and Roku (6%). While the fund has done well over the last five years (up 121%), the fund has been beaten down during the 2022 market pullback, leaving it down over 45%. Again, this is because the fund is so deeply focused in tech, which leaves it more vulnerable if there are issues in a singular sector.

But regardless of if you’re a fan of disruptive companies or only interested in investing in your favorite brands, this doesn’t mean you shouldn’t do your due diligence. If you bought a Peloton bike during the pandemic and became a hardcore fan, it wouldn’t have been the best decision to invest at the same time (unless you bought and sold your stock before Jan. 2021). The company stock’s has been plummeting and is down over 85% since its Jan. 2021 all-time high. So before designing your own ETF, it’s extremely important to do your research and know that you could lose much of your principal investment.

Selecting the best brokerage account

There are dozens of brokers and brokerage firms available to help you invest in your favorite brands. But before you jump at the first option you read about, consider a few important factors:

• Fees: Each time you make a trade, you may need to pay a commission. Consider working with brokerages like Fidelity or Vanguard, which now offer zero-commission trading options.
• Customer service: You’ll want a solid customer service system to help you resolve any issues that may arise. With your money on the line the last thing you’ll want to be worrying about is the status of your investment.
• User interface on web and mobile platforms: When making your purchases and trades, you’ll want to work with an easy-to-use website and/or app. You can open up accounts with different brokerages so you can test out each platform’s interface and find the one you like best before you invest.

Here’s a few of our favorite brokerage firms and investing apps to get started investing with:

Paying Taxes

The type of account you’re investing in and the type of trading you’re participating in will impact your year-end taxes. For example, if you invest in a Roth Individual Retirement Account, or a Roth IRA, all gains are tax-free as long as you don’t withdraw before the age of 59 and a half.

If, however, you invest in a regular taxable brokerage account and you regularly buy and sell stocks, any gains will be taxed at ordinary income tax rates. Note that if you hold stocks for longer than a year, you are eligible to pay lesser capital gains taxes. To avoid disappointment and potentially having to pay higher taxes, consult a tax professional to plan an investment strategy that best fits your financial needs.

Budgeting before investing

Investing is a great vehicle for growing your net worth, but it’s extremely important to proceed with caution, take it slow and ‘walk before you run.’ Before investing in the stock market, it’s best to eliminate all high-interest debt, build a fully-funded emergency fund just in case, and keep a sturdy budget in place.

If you’re interested in investing, consider doing so with the brands you already love spending your hard-earned money with. Not only will you be supporting the companies you love, you’ll know you own a small portion of it when doing so. However, it’s important to not go all in on one (or just a few) stock and have a diverse portfolio.

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