Even if I had no savings at all, I can start building an asset base that will generate cash. And I’d start off with some dividend stocks as the foundation of my portfolio.
Starting out, it’s tempting to try and get ahead by looking for stocks that might double or triple quickly. But I think this would be a mistake.
In getting started, the most important thing for me is to follow Warren Buffett’s two rules. The first is not to lose money, and the second is to not forget the first.
That approach might mean that I’m less likely to see explosive growth. But with no savings, avoiding a disaster is the most important thing for me.
Types of stock
Different businesses perform well in different conditions. Some do well in a strong economy, but struggle when things turn around. Others generally produce steady results over time.
In order to avoid a disaster while building my portfolio, I’d look to invest in companies that have different characteristics. That way, I should be able to progress steadily whatever happens.
With any company that I invest in, though, I’ll be looking for a high-quality business at a reasonable price. And I’ll be looking to use the company’s earnings to build my asset base and boost my income.
Cyclicals
Cyclical companies are ones that do well in favourable economic conditions and less well when things are slower. To an extent, the economy affects all businesses, but this is more true of some than others.
I’d like these companies in my portfolio to allow me to benefit from economic booms. There are three that stand out to me at the moment.
The stocks are Apple, Rio Tinto, and Starbucks. Each of these companies tends to do very well when people have more disposable income, but less well when times are harder.
Defensives
To offset the risk of a prolonged economic downturn, I’d also look to buy some shares in companies that are relatively immune to the economic cycles. These are defensive companies.
Defensive businesses make things that we use every day. They include things like toothpaste, cleaning products, and food.
Stocks like Coca-Cola, Kellogg, and Procter & Gamble would be my choices here. Even in a recession, demand for their products is likely to remain steady.
Investing with no savings
In my view, it’s never too late to start investing. Even if I had no savings, I’d look to start building a portfolio of dividend stocks today.
The important things for me would be to protect myself from the possibility of losing money. And I’d look to do this in two ways.
First, I’d focus on high-quality businesses. Each of the stocks that I’ve listed is a well-established operation that I think is unlikely to lose money over time.
Second, I’d try to make sure that I’m positioned to do well whatever the macroenvironment looks like. That’s why I’d look to balance cyclical stocks with more steady defensive investments.
The post No savings? I’d start building passive income streams with these dividend stocks appeared first on The Motley Fool UK.
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Stephen Wright has positions in Apple, Kellogg, and Procter & Gamble. The Motley Fool UK has recommended Apple. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.