My 2 Favorite Stocks to Buy Right Now

I have a simple approach to diversification: I buy a specific dollar amount of any new stock I acquire. After that point, I can opportunistically add (usually in steps) to my position but only to a point where my dollar investment is twice my entry level.

I’ve done just that with Hormel Foods (NYSE: HRL) and Realty Income (NYSE: O), so I’m at my max investment. But if I weren’t maxed out, I would still be adding more money to each of these reliable dividend stocks. Here’s why.

I have a diversification mandate

Having a diversified portfolio is a very important risk management tool. It stops you from putting all of your eggs in one basket and then dropping that basket. My approach is ultra simple — when I invest in a company, I buy a specific dollar amount of shares.

This has saved my portfolio many times over since, like every other human being, I make mistakes every now and again. No investment mistake I’ve ever made, even ones that have left me holding worthless shares in a bankrupt company (or two), has ever had a meaningful long-term impact on my finances. Thank you, diversification!

Image source: Getty Images.

That said, I am open to doubling my cash investment in a company if I believe it is warranted. Normally I do this when a company’s stock has fallen for some reason that I don’t believe is long-term in nature. Or, to put it another way, as long as my investment thesis is still intact, I’ll jump when I think a stock I own is cheap. The limit is that my cash outlay can’t go above two times my original investment.

In fact, I just added to my position in Toronto-Dominion Bank. The stock is way above my original investment point, but the yield is back to the point where I first bought in. I think it’s a bargain so I added some new cash. Two other stocks that I’ve added to multiple times, and would continue to add to if it weren’t for my self-imposed diversification rule, are Realty Income and Hormel Foods. Here’s why.

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