Monday, April 9, 2018

Portfolio Asset Allocation

I get questions from family and a lot of the time it pertains to allocation. What stocks do I buy and how much to buy and where to put it. That pretty much sums up what the important asset allocation questions are.

Should I buy stocks or ETFs? How many individual stocks should I buy and how much cash should I deploy into each one?

We are all so different is the problem with trying to find an answer. There is no hypnotic formula we can all follow here.

You have more money than me to invest. You want to take on more risk  because you're younger. I need money now but you don't need it until later. My house is paid for and you are still saving for one.

You see, we're all different and at a different stage in life.

A very generally accepted investing thesis is to be very conservative and balanced in your approach to investing, especially with money you need soon.
Losing money for you is not an option because you have a specific financial commitment coming due.

This is where you put that portion of your assets into cash, high interest savings accounts and a conservative bond ETF. I use the ETF because I don't possess the knowledge on how to pick individual bonds. I would put 40% of my investable dollars into these assets as recommended by Garth Turner over at

His asset allocation changes with the times so try to keep up with your reading and research.

You never want to place too heavy a weight on any one asset class. Spread out the risk and diversify. 5% cash, 5% in a HISA and 30% bonds.

The Couch Potato Portfolio just recommends a 40% weighting in bonds. It's simple and you can sell all or part of your holdings if you need cash right away.

I like to buy individual stocks as recommended by Stephen Jarislowsky in 'The Investment Zoo' and Tom Connolly over at

I never buy more than a 5% position in any one stock. I like to spread out my risk in at least 10 stocks. You might like to start with 5. A lot of professional money managers might tell you to wait until you have a million dollars to invest in stocks. They want you to buy ETFs to spread out the risk. That's OK too.

If that's how to want to do it make sure you spread things out to include Canada, US and Int'l holdings. You can also add in some REITs or an ETF. I don't own any. My paid for house has that covered off for me.

I believe the conservative income part of your portfolio can manage to generate a return of 3.5%. Mine does.

On a thousand dollars that turns into $1035. The next year that $1035 turns into $1071. This is how your principal combined with interest generate that nice return over time.

If you just use this simple way of compounding your money, over time you will have built up a sum of money that will change your future dramatically.

Roll any gains you make in interest and dividends from your stocks into new investments. A little cash, some more bonds and or a stock that you have been wanting to buy.

This is how you profit, reduce risk, allocate investment funds and slowly build your wealth over time. Keep it simple, buy what you know, hold some cash and don't get greedy with the money you need for your family's future or your retirement. Above all else stay balanced in life and investing.

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  1. Asset Allocation, Diversification and Re-Balancing are almost Golden Rules for advisors and probably many investors. I don't feel that way and based on our own experience found them more of a hindrance than helpful.
    Without going into a long narrative, I feel they apply more to short-term than the long-term. In the short term some sectors are up while others go down. I don't like FI because they are fixed and don't grow and if one owns good stocks why re-balance.
    As for ETF's I've yet to find one where I'd want to own all or even most of their holdings. Why would I pay a fee, regardless how small, to own 70% of what I don't want.
    The real matter is that when there is a crash, correction,recession, etc, ALL stocks, funds & ETF's will go down. The difference is, will your Income drop and continue to grow during the recovery period.

  2. Well I'm hoping income will remain constant during a recession. Even Tom Connolly stated it was the closest he has ever come to liquidating everything when the financial crisis hit. He didn't expect things to drop that much. Of course as we know everything came roaring back in a year.
    Everyone says their portfolio is recession proof and they are happy until it doesn't work. I totally agree with you on the income part. Let's hope none of our companies cut dividends when the SHTF as it always does. Good luck my friend.


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