How much should one allocate to various assets, such as stocks and bonds, in their portfolio? The rule of thumb used to be subtracting your age from 100 and the results would be the percentage in equity. For example, if you are 55, you should have 45% in equity and 55% in bonds. In reality, it is more complicated than that. A lot really depends on the value of your liquid assets, your income tax bracket, your financial situation, goals and objectives, your income needs, risk tolerance, etc.
We sit down with each client, and through discovery meetings, get an overall view of what the client's goals and objectives are. Creating a stock portfolio takes time and does not happen overnight. Diversification is key to deciding what stock should or should not be in one's portfolio. Should one invest in only large cap companies, small cap companies or speculative stocks or a combination of the preceding?
Nowadays, there are Exchange Traded Funds (ETFs) that one could invest in with relatively low Management Expense Ratios (MER) and have the diversification one needs with lower MERs compared to Mutual Funds. Barclays' Global Investors in the United States, the world's largest family of ETFs, describes ETFs in their website as: iShares index funds give you instant, diversified exposure to broad markets and precise sectors, including international, global, commodities, energy, finance, healthcare, technology, telecom, and more. And no one offers more fixed income funds than iShares bond ETFs.
The Canadian counterpart of Barclays is the Claymore ETFs. One of the features described on their website regarding ETF's is as follows: represent an investment in an index or basket of securities, thus providing a convenient approach to achieve diversification. This level of diversification would be time consuming (and expensive) to replicate using individual stocks and bonds.
The best times to buy a stock is when everyone is pessimistic about the economy or as the saying goes, sell on good news and buy on bad news! In this time of volatility in the markets, we also like dividends stocks as dividend-paying investments offer less volatility and downside protection. As the multi-billionaire John D. Rockefeller said to a neighbour, Do you know the only thing that gives me pleasure? It's to see my dividends coming in. While dividends can never be guaranteed, the fact that the company is expected to pay a dividends and even increase the dividends over time, discourages wasteful spending and tends to enforce the discipline management needs to keep a company successful.
Keep our Investment 101 in mind of; Diversification; don't put all your eggs in one basket. Asset allocate between fixed income, bonds and equity. Do Dollar Cost averaging. Do not invest in the "flavour of the month". Think and invest for the long term, keep core holdings for long term but do not be afraid to sell when you have to. Remember, it is just as hard to sell a stock as it is to buy a stock. Look for a qualified and a caring advisor. One who will listen to your goals and objectives and will recommend and give advice based on what your needs are.
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Please note: Ms. Mimi Tang, offers financial planning and insurance services as an independent representative, under Mimi Tang Wealth Management and Consulting LTD. and these services are offered independently of PEAK Securities.
PEAK Securities inc., an IDA registered, full service investment broker, limits its responsibility to investment products such as stocks, bonds, and mutual funds. PEAK Securities inc. is a member of the Canadian Investor Protection Fund.
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