How can Patti simplify her unwieldy portfolio?
How can Patti simplify her unwieldy portfolio?
TFSA TOTAL: $57,848
INVESTMENT STRATEGY: 100% equities with 25% invested in international ETFs and 75% invested in Canadian stocks
|TFSA holdings||Ticker Symbol||Amount Invested|
|Vanguard FTSE Global All-Cap EX Cda. Index ETF||VXC||$16,155|
|Alacer Gold Corp||TSE:ACR||$560|
|Athabasca Oil Corp.||TSE:ATH||$1,800|
|Bank of Nova Scotia||TSE:BNS||$3,822|
|Calfrac Well Services Ltd.||TSE:CFW||$510|
|Canadian National Railway Co.||TSE:CNR||$5,835|
|Canfor Pulp Products Inc.||TSE:TFX||$2,593|
|Fairfax Financial Holdings||TSE:FFH||$2,853|
|HIKU Brands Co. Ltd.||CNSX: HIKU||$894|
|Interrent Real Estate Inv. Trust||TSE: IIP.UN||1,079|
|ishares Core S&P/TSX Capped Index ETF||TSE: XIC||$260|
|Kirkland Lake Gold Ltd.||TSE:KL||$2,894|
|Magna International Inc.||TSE:MG||$2,244|
|Petrowest Corp.||TSE: PRW-T||$58|
|Shopify Inc.||TSE: SHOP||$2,254|
|TheRatetechnologies Inc.||TSE: TH||$982|
Patti W. is 58 years old, lives in Toronto and is self-employed. Last year she received a small inheritance and was able to max out her TFSA, bringing it from $2,000 to $57,500. “I left the money in cash in the TFSA for a few months because I hadn’t had much time to think it through,” says Patti. “This is the only lump sum I will likely ever receive and I want to invest it well.”
That’s why, over the past few months, Patti says she has done quite a bit of what she calls “not-too-technical research” by starting to read the business section of The Globe and Mail , a variety of investment newsletters, and the Economist , “when I can sneak in a few free articles,” says Patti.
READ: A near-perfect TFSA for avid stock pickers
This past May, Patti enrolled in a two-day investing workshop through an investment trading company and as a result, she says she feels more confident about investing now after taking it. “I’m not too technical a person but I feel better that I can read a stock chart,” says Patti, who had an investing buddy take the course with her. Still, she’s coming to realize that she doesn’t have the knowledge or time to devote to stock picking, even though she finds it interesting. “That’s why I like the idea of owning ETFs ,” says Patti.
Right now, Patti has 19 different ETF and stock holdings in her TFSA—an overwhelming amount for her. They include tiny amounts of several large stock companies across different sectors—Magna International, Bank of Nova Scotia, Enbridge, Canfor Pulp Products, Alacer Gold, Shopify just to name a few.
In fact, Patti has come to the conclusion that a permanent portfolio/couch potato approach for her TFSA is what she’d really like to aim for—and she’d like it to be 100% invested in equities. “I have a LIRA and an RRSP which are invested more conservatively so I’m not worried about being 100% equities in my TFSA,” says Patti. “I’m just not sure what the best approach is for selling the stocks I already own and rebalancing to build a good low-cost couch potato portfolio. That’s what I really need help with.”
And Patti has already started by investing a large portion of her TFSA—about $16,500—in the Vanguard FTSE Global All-Cap Ex Cda. Index ETF (VXC), a low-cost international exchange-traded fund in May. Patti knows that keeping fees low so the ETF approach is something she feels would work for her.
But she was disappointed when VXC lost quite a bit of value right away. “The very next day, Trump announced tariffs against China and the ETF has underperformed ever since,” says Patti. “That was a bit disappointing.”
Investment returns have not been great either. In fact, her account looked like it was up $3,000 dollars in 2017 but Patti soon realized that the amount actually included her $3,000 TFSA contribution earlier this year so all-in-all, her account has stayed pretty much flat. “I’m not a genius but I want to pay attention to my investments,” says Patti. “I want to retire in 10 years and without a company pension, I need my investments to perform relatively well to accomplish that. Travel to South America, Australia, and New Zealand are all on my bucket list and I’m hoping my investment returns will make those trips possible for me.”
It’s just not possible to build a properly diversified portfolio of individual stocks with $57,000. “It might be different if the portfolio was several hundred thousand dollars and you could hold at least 30 to 40 stocks in meaningful amounts,” says Dan Bortolotti, associate portfolio manager and financial planner with PWL Capital in Toronto. “But if Patti is paying commissions on every trade then she should not have holdings of a few hundred dollars each. ETFs are much more appropriate for this situation.”
Bortolotti also offered a couple of other tips for Patti. And although he doesn’t know what her holdings are in her RRSP and other portfolios, but in isolation, Bortolotti says holding 75% of her equities in Canada is not ideal. “It’s great that she’s using VXC to get U.S. and international exposure, but I would generally recommend that this be closer to two-thirds of her equity allocation, not 25%,” says Bortolotti.
So what’s the easy fix? Sell all of the individual stocks and use just two ETFs going forward: VXC and XIC. (These are the ones she already holds and can stick with, even though there are other similar funds that would be just as good.) “Again, ignoring the rest of the portfolio, this could be allocated two-thirds VXC (about $38,700) and one-third XIC (about $19,100),” suggests Bortolotti.
Bortolotti believes that the “is it a good time to sell” argument is really a huge distraction here. Patti hasn’t held the stocks for very long, so there isn’t likely to be a significant gain or loss, and there are no tax consequences to consider in a TFSA. Of course, explains Bortolotti, the trading commissions will take a bite, but that will be the case whether she sells everything at once or divests gradually. “Chalk this up as a lesson learned: as investing mistakes go it’s a very small one,” says Bortolotti. “As soon as she has rebuilt the account with just two ETFs she will feel more comfortable with her plan going forward, so the sooner the better.”
And finally, as for rebalancing, Bortolotti suggests Patti simply do this once a year when making her annual contribution. “Unless there is a very large variance in returns between Canadian and foreign stocks, this should be all that’s necessary for at least the first several years.”
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Don’t listen to the pro section. No one is a pro at stocks, mere speculation. Only there can be a better researcher then another, that’s a no brainer. It takes practice to couch potato and with 50k you can definitely retire in 10 years. 10 years is longer then required to get living comfortable and couch potato or travel while constantly cruising your portfolio and take small steady risks to grow slow over 10 years, before you know it, you’ll see retirement as a possible outlook so good. Good luck patti I wish you success .