Get the Right Stocks in Your Portfolio

This article is part of our Rising Star portfolio series.

My real-money Rising Star portfolio is designed so you can follow along and achieve a well-rounded, diversified portfolio of your very own. Now that I'm a few recommendations in, I want to step back and assess where we are at this point.

First, here's a look at the stocks I've bought and their performance to date:

Company	Date Purchased	Return
Coca-Cola (NYSE: KO  )	Nov. 30, 2010	6%
Coca-Cola	Dec. 31, 2010	2%
lululemon athletica (Nasdaq: LULU  )	Jan. 12, 2011	23%
Johnson & Johnson (NYSE: JNJ  )	Feb. 28, 2011	(2%)
Abbott Labs (NYSE: ABT  )	Feb. 28, 2011	4%
lululemon athletica	March 24, 2011	13%
II-VI (Nasdaq: IIVI  )	April 5, 2011	(2%)

So far, so good. There's no way to draw any meaningful conclusions after just a few months, but getting off to a good start is certainly better than the alternative!

When I started the port, I established the following allocation guidelines:

Large caps	45%
Mid caps	15%
Small caps	15%
International	25%

I won't be too much of a stickler about hitting these percentages, but this is a pretty good guideline for most people. After buying five stocks over seven different purchases, here's how it shakes out so far:

Company	Market cap (millions)	Size	Value	% of Port
Coca-Cola	$155,200	Large	$1,080.32	28%
lululemon athletica	$6,600	Mid	$1,283.94	33%
Johnson & Johnson	$163,400	Large	$477.16	12%
Abbott Labs	$78,500	Large	$505.75	13%
II-VI	$1,500	Small	$542.08	14%
Totals			$3,889.25	100%

So that gives me 53% large-cap exposure, 33% mid-cap, and 14% small-cap. I have exposure to health care, retail, technology, and however you want to define Coca-Cola (sugar water industry?). I really like the way things are shaping up.

It's also pretty easy to see where our next stop should be: international. This is sort of a squirrely category to begin with (to use a technical term). After all, Coke, Johnson & Johnson, II-VI, and Abbott Labs all have more than half their sales overseas. But all my stocks are headquartered in the U.S., and I do want to branch out some more to get some internationally based companies in the mix.

Why? Increasing your exposure to foreign stocks, up to a certain point, both raises your expected returns and lowers your risk. It's what Princeton professor Burton Malkiel calls "the closest thing to a free lunch in our world securities markets." Not buying foreign stocks, says Wharton professor Jeremy Siegel, "is a risky strategy for investors."

In my next article, I'll show you how to construct a screen that will provide us with a great list of international candidates. Until then, feel free to keep up with my tweedlings on Twitter.