How does the old saying go? "If I had known then what I know now"? It may be a tired, shop-worn cliche, but it's tired for all the right reasons. Namely, everyone can relate to the idea, including investors. There are just some lessons that can only be learned in time, and that are usually taught by mistakes.

With that as the backdrop, if I could start over with a completely clean slate and $50,000 in cash, here's what my initial portfolio would look like.


It may not be an exciting holding, but you don't invest for excitement -- you invest to grow your assets. Simply participating in the broad market's long-term success is the best, risk-adjusted way of achieving this goal. Ergo, I'd allocate more than one-third of my portfolio to index funds like the SPDR S&P 500 ETF Trust (SPY -0.05%).

I wouldn't stop there, however.

While a fund based on the S&P 500 (^GSPC 0.02%) is the go-to indexing solution, that's advice largely based on familiarity; most investors view the large-cap index as being a proxy for "the market." But this isn't the only means of plugging into the market, or even the most productive way. You can take on similar risk but achieve better long-term returns with exposure to mid-cap stocks via a fund like the iShares Core S&P Mid-Cap ETF (IJH 0.04%), which reflects the S&P 400 Mid-Cap Index.

Plan for more volatility than the S&P 500, but given enough time, that volatility is worth it. As it turns out, mid-caps are in a growth sweet spot, often leading to impressive returns that large-cap stocks can no longer dish out. Still, I wouldn't devote any more than half of the foundational sliver of my portfolio to mid-caps.


I could stop with index funds. But given that I have the time and inclination to hold individual stocks en route to retirement, there's a handful of relatively safe picks I feel good enough about owning for the long haul. Two of the more secure names I'd start my retirement portfolio with are Coca-Cola (KO 1.50%) and utility outfit The Southern Company (SO 0.90%).

Both are dividend-oriented tickers, for the record. Southern's currently yielding 3.5%, while Coca-Cola's paying out a little more than 2.7%. Both are at above the average yield for their categories, or their industries.

It's not their yields that are compelling, though. I'm far more interested in how reliable their dividend payments are, and how reliably they grow. The Southern Company's payouts are supported by consumers and businesses that want to keep their lights on, while Coca-Cola's dividend payments reflect customers' love for -- and loyalty to -- a particular beverage brand.

And these things matter. Not only has Coca-Cola paid a dividend in every quarter for the past 60 years, it has raised its payout every year during that six-decade stretch. The Southern Company is now into its 21st consecutive year of increased quarterly dividend payments.

I do take a slightly different tack than most investors when it comes to collecting dividends, though. While I'm not necessarily against the idea of reinvesting dividend payments in more shares of that same stock, I'm also a fan of collecting dividends in the form of cash and accumulating it, so I've got some liquidity if and when new investment opportunities arise. This flexibility can be very important for retirement accounts, where you don't always have the option of adding new funds.


Finally, with my portfolio's foundation laid and safer, more reliable stocks in place, I can get a bit more aggressive. Even then, I'm not exactly getting reckless with names like Microsoft (MSFT 0.37%) and Amazon (AMZN -1.64%).

Neither company requires introduction or explanation. Microsoft is, of course, the preeminent name in software while Amazon has evolved into the name to beat within the e-commerce arena.

Those aren't the reasons these two tickers stand out, however. At the heart of their bullish arguments are their business models. Both are building recurring revenue businesses that generate recurring profits. Access to software like Microsoft's Word or Excel or its cloud-computing platform Azure is increasingly rented on a monthly basis rather than purchased outright.

Meanwhile, although you know Amazon best as an e-commerce outfit, three-fourths of last year's operating income was supplied by Amazon Web Services, while $31 billion worth of last year's top line of $470 billion was high-margin ad revenue linked to its e-commerce business. As is the case with Microsoft's cloud-based software, Amazon's cloud-computing and advertising operations are much more sustainably profitable than selling goods online is. We'll never not need software or cloud computing.

Here at the midpoint of my life with several more years to go before I'm even thinking about retirement, I'd allocate roughly another third of my investable assets to growth names like these.

Just food for thought

These aren't necessarily the only investments I'd add to my collection. But they're the first I'd scoop up, and with a sizable stake in two different index funds and four distinctly different companies, I wouldn't be in too big a hurry to indiscriminately add a bunch more diversity. In fact, if I never owned any other individual stocks, I could live with that, since I've already got a ton of diversity packed into my index funds.

That's just me, of course, as is the hypothetical portfolio being described here. Feel free to borrow my ideas as you see fit, but adapt them as needed for your particular tastes and needs.