# Stock Portfolio. Diversified or no?



## jaybee (Nov 28, 2014)

So, I'm looking for some feed back on the following stock portfolio. The value of the portfolio as of today is about $600,000.00 Cdn. About $420,000.00 in Canadian stocks, with the remainder being in US stocks. 

The following are the holdings and their percentage of the portfolio:

Any feedback would be appreciated


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## FI40 (Apr 6, 2015)

There are a lot of ways you could look at that. I'd say it's not that well globally diversified - Canada represents something like 4% of the global equity market I believe. Even with a strong home country/currency bias, that's a lot of Canada.

I think an easy way to determine diversification would be to look up the sector of each of the companies involved (Financials, Energy, Consumer Discretionary, etc.) and sum up the dollar value in each sector and the # of companies in each sector. If that's spread out enough then great.

I think there was an academic paper published a while ago about how with only 10 holdings you can achieve "enough" diversification in some statistical sense.

Curious though, why do you ask?


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## jaybee (Nov 28, 2014)

FI40 said:


> Curious though, why do you ask?


Thanks for the response. I'm just wondering if I have too much exposure to Canada or not. I'm starting to think so. However, a lot my Canadian holdings do significant business in the US and internationally(e.g BAM.A, EMA, WSP, STC, ITP etc). And many of my US holding do business internationally as well.


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## FI40 (Apr 6, 2015)

jaybee said:


> Thanks for the response. I'm just wondering if I have too much exposure to Canada or not. I'm starting to think so. However, a lot my Canadian holdings do significant business in the US and internationally(e.g BAM.A, EMA, WSP, STC, ITP etc). And many of my US holding do business internationally as well.


I see. I think another thing to think about is your future liabilities. When you eventually sell your stuff (I guess in retirement), if you plan to travel a lot then currency-unhedged international exposure is important. If you will stay in Canada forever then I suppose that's not much of a concern.


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## jaybee (Nov 28, 2014)

FI40 said:


> I see. I think another thing to think about is your future liabilities. When you eventually sell your stuff (I guess in retirement), if you plan to travel a lot then currency-unhedged international exposure is important. If you will stay in Canada forever then I suppose that's not much of a concern.


Funny, you should mention that. Wife and I are in our late thirties. We'd like to buy a property in a warmer climate in retirement. We're both between 15 and 20 years before we can collect our defined benefit pension. 


We own our home outright, and we have a small mortgage on our cottage that we plan on paying off soon. I anticipate that we will spend more and more time in the US as we age, and as our young children go to University and become more self sufficient.

Should we be buying more US securities? Opening a USD bank account?


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## namelessone (Sep 28, 2012)

It's sufficiently diversified.(around 30 stocks) Don't worry about the international exposure. It's not necessary. Politically and economically, Canada and US are a lot stable than many countries out there. I have invested 90% in high quality Canadian businesses and 10% in US businesses. 
IMHO, the weight on some USD stocks is on the high side. The weight represents your confidence on that stock selection. I would put 10% on CNR than 10% on AAPL. But I am into equal weight portfolio, my biggest position is only 3.3% of overall portfolio. 
P.S I have 8 CAD stocks and 1 USD stock in common as yours. (30% of stocks)


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## My Own Advisor (Sep 24, 2012)

@jaybee,

First of all, well done.

To summarize...

-you and wife are late-30s.
-your portfolio is $600k
-you own your home
AND
-you have a small mortgage left on a cottage.

VERY well done.

I think owning more U.S. assets over time is a good idea. Whether indexed (e.g., VTI) or via more stocks like dividend aristocrats you have. Your Canadian portfolio is looking rather strong. I don't have much to say, well done, with another 10 years of saving of maxing out your TFSAs and RRSPs you're set for life.


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## OurBigFatWallet (Jan 20, 2014)

Looks good. Are all the stocks held within an RRSP, TFSA or taxable? The reason I ask is that the US dividends are treated differently for taxes depending on which account they're in


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## james4beach (Nov 15, 2012)

This is about 45 holdings... that seems like it would be a lot of work to manage all those positions.

My concern would be that occasionally, big changes happen at companies (I'm talking about negative surprises). For instance fraud starts developing, or the company's fortunes start plunging due to bad management or a bad surprise. It's tough to monitor all 45 of them for those kinds of shifts. Think of what happened to Bombardier -- seems like an average, even popular Canadian company for a long time. Then in 2015 it all starts going into the dumps.

I'm not fundamentally opposed to holding individual stocks but I think they require some management effort, and I don't think a single person can stay on top of 45 stock positions, unless you're spending a lot of time doing that.


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## Sampson (Apr 3, 2009)

As J4b and FI40 suggest, the efficient frontier has been quoted to be anywhere between 15+ and minimal benefit beyond 30. I still subscribe the the 20-30 range as has been demonstrated empirical following Markowitz's original ideas by Malkiel, Bernstein, Fama and French.

I think in our present market conditions, expectations of magnitude of return must be dampened, and so these models, while completely relevant, need some new numbers for adjustment.

Many people argue these ideas are too academic or preachy, so I would say that if you have been comparing your portfolio to a suitable benchmark and you are happy with your returns, forget about all the mumble-jumble and keep at it what you have been doing.

There is always the 'best' way, but I have always thought that there is not post trying to chase the optimal strategy in finance, there are too many unknowns and you will never know except for after the fact. Follow the strategy that gets you where you want to be. Hey, after all, that's where you want to be, so achieving that goal is really the only purpose.

Feedback specifically about the portfolio...no offence, but seems there were some buys that ere yield-chasers. Cut out the flak and diversify internationally, now is not the time, but I have always love the swiss, Roche, Novartis, UBS (when no encumbered by scandal, or immediately after scandal hits and therein value). The top French, German, and British holdings are no slouch either. I think you need the lower correlation components internationally to be truly diversified.


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## gibor365 (Apr 1, 2011)

> This is about 45 holdings... that seems like it would be a lot of work to manage all those positions.
> 
> My concern would be that occasionally, big changes happen at companies (I'm talking about negative surprises).


I don't think so, why to manage stocks like JNJ, ABT or RY?! If "negative surprises" happens , it will be too late for working DYI investor to do anything at all, all surprises will be "priced in" before you can act regardless if you have 5 or 55 holdings... if 1 company has "negative surprises" , damage to your portfolio will be much higher if you have 5 stocks than 55...
OP, I'd probably add more international exposure, like VEA/VGK, DEM/VWO


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## My Own Advisor (Sep 24, 2012)

james4beach said:


> This is about 45 holdings... that seems like it would be a lot of work to manage all those positions.
> 
> I'm not fundamentally opposed to holding individual stocks but I think they require some management effort, and I don't think a single person can stay on top of 45 stock positions, unless you're spending a lot of time doing that.


I respectfully disagree. 

45 positions is fine to manage, given 10-20 of them are buy and forever holds per se in this country. Canadian banks (5-7), pipelines (2-4), telcos (2-4), and utilities (2-4) make this country go around. Buy them now, collect dividends, buy more when prices tank, reinvest dividends eventually, keep reinvesting dividends and rinse and repeat for as long as you can for cash flow.

http://www.myownadvisor.ca/canadian-dividend-stocks-buy-mostly-forget/

45 stocks would be crazy to manage non-registered but it could be done. 

It's hard to argue with jaybee's success. I mean, > $600k invested and a paid off house in late-30s? Really? Awesome. 

I like what Sampson said: there "is always the 'best' way, but I have always thought that there is not post trying to chase the optimal strategy in finance, there are too many unknowns and you will never know except for after the fact. Follow the strategy that gets you where you want to be."

If you're following a plan that's meeting your goals then nobody can really argue that. Although they can!


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## AltaRed (Jun 8, 2009)

I'd say the OP is doing very well too. 

My view for the long term would be the equivalent of a 20 stock portfolio @ 5% weighting each, split evenly between Canada, USA and Int'l and balanced to some degree by sector....with a caveat to ignore cyclic resource, energy and materials (unless one wants the challenge of 'trading' around these latter sectors).

However, one thing to consider: How long will one want to stay on top of and manage that many stocks? If these investments are not in registered accounts, the individual holdings will appreciate with very large unrealized capital gains. IF one tires of monitoring such a portfolio by the time one is 60 or 70 years old, it is way too late to consolidate into a simpler portfolio without paying a lot of cap gains tax. I know of several people who have tired of monitoring stocks after a few decades but are 'stuck'.

By thinking ahead and using ETFs for all the ex-Canada holdings it simplifies things immensely. I realized about 10 years ago, I had no interest in managing stocks for any holdings ex-Canada. I am slowing ridding myself of the last individual US stock holdings and will eventually be nothing but VTI and VGK for my ex-Canada holdings in a few years. I don't care about Asia or emerging markets BUT it is easy to accomplish ex-Canada holdings with VXC or XAW (covers the world ex-Canada).

That leaves one to focus on stock picking for Canada only and those are easy picks as MOA suggested. I'd pick 2-3 banks, 1-2 lifecos, 2 pipelines, 2 telcos, 2 utilities and 2 consumer types and let them ride. Stay away from high yield plays as they are usually value traps.


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## My Own Advisor (Sep 24, 2012)

The good news AR is capital gains are a very low form of tax. This way, when you're older, and your income is lower, this is a perfect time sell of stocks that have appreciated in great value. 

Agree?


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## jaybee (Nov 28, 2014)

My Own Advisor said:


> It's hard to argue with jaybee's success. I mean, > $600k invested and a paid off house in late-30s? Really? Awesome.


Thanks MOA. My success is a culmination getting started with investing when I was young (20 yrs old), a generous stock savings plans with my former employer, and having the nerve to invest an entire $30,000.00 inheritance in Canadian banks stocks near the end of 2008. I won't claim that it is the result of any particular skill set.


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## My Own Advisor (Sep 24, 2012)

You were obviously smart enough to invest in established dividend paying stocks in 2008 when others were running from them. Skill = ability to do something well. That's very well done!!


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## jaybee (Nov 28, 2014)

OurBigFatWallet said:


> Looks good. Are all the stocks held within an RRSP, TFSA or taxable? The reason I ask is that the US dividends are treated differently for taxes depending on which account they're in


Thanks. All of the US stocks are held in my RRSP. Everything is registered within TFSA's and RRSP's, with the exception of about $50,000 held with Computershare in stocks that have Drips plus share purchase plans.


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## jaybee (Nov 28, 2014)

My Own Advisor said:


> You were obviously smart enough to invest in established dividend paying stocks in 2008 when others were running from them. Skill = ability to do something well. That's very well done!!


Yeah, I chalk it up to good timing to inherit money, and nerves of steel!


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## AltaRed (Jun 8, 2009)

My Own Advisor said:


> The good news AR is capital gains are a very low form of tax. This way, when you're older, and your income is lower, this is a perfect time sell of stocks that have appreciated in great value.
> 
> Agree?


Yes, but if one is suddenly 'fed up' with stock picking and monitoring and wants to overhaul to a KISS ETF portfolio, it could take a decade or more of 'pacing' stock sales to keep one from jumping into another MTR (or two), especially if it also impacts OAS clawback. 

IOW, if one suddenly wakes up at 70 yrs old and says WTF with managing a 20 stock portfolio, that person is pretty much hooped getting to 2-3 ETFs cost effectively any time quickly. That is a real issue for many folks who have come to this conclusion post-retirement (as also discussed on another forum). 

I mention this only to cause some thought to folks who think they might want to manage a stock portfolio forever, i.e. until they are in a rocking chair in a retirement home. The real answer is no....so one needs to give some thought as to when to start making that transition to a KISS portfolio.

Added later: An alternative to an overhaul is to turn that stock portfolio over to a financial advisor to manage.


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## jaybee (Nov 28, 2014)

AltaRed said:


> Yes, but if one is suddenly 'fed up' with stock picking and monitoring and wants to overhaul to a KISS ETF portfolio, it could take a decade or more of 'pacing' stock sales to keep one from jumping into another MTR (or two), especially if it also impacts OAS clawback.
> 
> IOW, if one suddenly wakes up at 70 yrs old and says WTF with managing a 20 stock portfolio, that person is pretty much hooped getting to 2-3 ETFs cost effectively any time quickly. That is a real issue for many folks who have come to this conclusion post-retirement (as also discussed on another forum).
> 
> ...


I have to admit AR, this is not something I've thought much about. Currently I enjoy it, but who knows? Maybe I will lose interest in it. Another thing that concerns me is if something happens to me. My wife doesn't have the time or the interest to manage this portfolio. Maybe I ought to leave some instructions for her to simplify things...should something happen to me.


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## Moneytoo (Mar 26, 2014)

jaybee said:


> My wife doesn't have the time or the interest to manage this portfolio. Maybe I ought to leave some instructions for her to simplify things...should something happen to me.


If you decide to do it, maybe this will help: http://www.milliondollarjourney.com/letter-to-my-wife-how-our-finances-work.htm


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## AltaRed (Jun 8, 2009)

Moneytoo said:


> If you decide to do it, maybe this will help: http://www.milliondollarjourney.com/letter-to-my-wife-how-our-finances-work.htm


That pro forma letter is a pretty good one but it presumes someone who has sufficient free cash flow from income to avoid touching capital. I'd speculate less than 5% of families are in that position so it means the surviving spouse is either going to have to learn some basic principles of DIY investing, including continuing to build the retirement plan (if in that stage of life), and at the least how to do stock buys/sells, or s/he will turn it over to a financial advisor. That is infinitely more intimidating than the pro forma example. In many ways, turning it over to a financial advisor would be the smart thing for a surviving spouse to do, preferably a fee only financial advisor, not a full service commissioned salesperson.

Believe it, it is way more challenging than any seasoned DIYer here can imagine. I've seen it in real time having gotten divorced 7 years ago (post-retirment) and I've had to help my ex get up to speed on managing her now, withdrawal stage, portfolio. She is a bright intelligent person but has no interest in finances.... So, the key has been to help her convert her portfolio to a KISS ETF portfolio. We are nearing the end of 7 years of transition. I've had to help guide her through many buy/sells in her discount brokerage accounts. I've also given her guidance on who to go to if she ever tires of DIY. 

Don't underestimate what it takes to manage an overall portfolio on one's own. At the very least, make it KISS!


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## jaybee (Nov 28, 2014)

Sampson said:


> Feedback specifically about the portfolio...n*o offence, but seems there were some buys that ere yield-chasers. * Cut out the flak and diversify internationally, now is not the time, but I have always love the swiss, Roche, Novartis, UBS (when no encumbered by scandal, or immediately after scandal hits and therein value). The top French, German, and British holdings are no slouch either. I think you need the lower correlation components internationally to be truly diversified.


No offence taken, but I can tell you that I'm not a yield chaser. However I am a fan of dividend growth stocks. I tend to only look at Dividend paying stocks in general. Although, I've been known to make an exception. As an example, I did buy AAPL; two quarters before they started paying a dividend (it was widely expected that they'd start paying a divvy in the near future).


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## jaybee (Nov 28, 2014)

AltaRed said:


> Added later: An alternative to an overhaul is to turn that stock portfolio over to a financial advisor to manage.


Good point, although I have a hard time trusting others with my money. I suspect, I'll simplify things when the time comes, rather than have somebody managing my portfolio. For now, I enjoy following these companies...


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## humble_pie (Jun 7, 2009)

My Own Advisor said:


> The good news AR is capital gains are a very low form of tax. This way, when you're older, and your income is lower, this is a perfect time sell of stocks that have appreciated in great value.
> Agree?




so sorry, but cannot agree! When invested assets have appreciated by thousands of percentage points, the capital gains tax owing if such assets are sold will push the investor into a higher tax bracket. Never mind that gains themselves are only 50% taxable, the addition of gains in amounts as low as $100k can push investor into a higher bracket that will apply to his entire income.

altaRed says that many older investors have this Problem.

every financial advisor knows this Problem. It's one of the reasons why advisors act so skittish around established accounts with valuable but long-held assets.



AltaRed said:


> However, one thing to consider: How long will one want to stay on top of and manage that many stocks? If these investments are not in registered accounts, the individual holdings will appreciate with very large unrealized capital gains.
> 
> IF one tires of monitoring such a portfolio by the time one is 60 or 70 years old, it is way too late to consolidate into a simpler portfolio without paying a lot of cap gains tax. I know of several people who have tired of monitoring stocks after a few decades but are 'stuck'.



likewise, an option trader like myself always needs to be mindful of cost base, in the event that an option assignment would trigger a stock sale plus, in some cases, unwelcome heavy taxation due to greatly appreciated price of the underlying stock.


*here's a simple strategy that works gently to mitigate eventual capital gains taxes*. It's not a strategy that works at the final moment. Rather, it's a discipline that has to be practiced every single year, more or less throughout investor's lifetime.

1) every year, investor will identify one holding with gigantic capital gains. Investor waits for a trading opportunity in that stock, ie a plateauing or falling share price plus a period with no dividend X dates or earnings announcements.

2) investor will sell a smallish number of such shares. Any number from 100 to 500 shares or higher, depending on the overall size of the holding itself. This sale will indeed result in a capital gain, but the gain should be small enough (remember that only half of a capital gain is taxable) that it will not bump him up into the next higher tax bracket. Run the tax numbers first, both federal & provincial, to see what will happen.

3) investor should use technical chart indicators to assist in the timing of such sale. I like stochastics myself. I look at RSI. Recently cmf member Pluto has introduced a moneyflow chart indicator that i'm studying.

4) ideally the underlying stock will be trending down, investor can & should re-buy immediately upon the slippage of a point or 2. In any event, investor should re-buy immediately. Even if the flip sale ends up costing him 2 discount broker commissions plus a dollar or two, these penny costs will be lower than the capital gains tax that will be finally owing when high gain stocks are sold as one whopping bundle.

the foregoing is a good modality to practice in any estate planning. Its drawback is that it has to be started when the investor is middle-aged or even younger. Its advantage can only occur when an investor takes a restricted, controlled-dollar amount of capital gains every year.


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## peterk (May 16, 2010)

Ah, so this is what you were referring to the other day about selling a little bit each year to "raise the ACB" HP?

Sounds like a strategy that takes very careful calculation and involves making some accurate, multi-decade estimates on a number of things. ROR, employment income, investment income, pension income, tax rates, retirement province, etc.

Does it not have two things working against it though? Mainly, the likelihood that employment income would be quite a bit higher than pension + investment income (maybe not in all cases, but probably a majority), thus giving you more "wiggle room" to take a capital gain during retirement years compared to working years? Secondly, that you are trading a future liability for a present liability, and giving up all the investment growth that those present funds could have earned over the coming decades?

Obviously a back of the napkin calculation may show that doing this is better than keeping all the gains until your final years, likely causing incomes to soar into the hundreds of thousands and highest tax bracket during those last few years. But it is less clear how this compares to a methodical liquidation during the 20+ years between ~60 and death, when working income is gone and pension income provides the majority.

It sounds like a good idea, but it sure seems like one heck of a calculation that must be done to determine if and/or how much capital gains should be taken in any given year. How do you do it with an degree of accuracy/confidence?

An additional thought, what are the chances that over an entire career one has high income every single year? Unemployed for 6 months between jobs, leave of absence to care for a loved-one, taking a break to travel, back to school, midlife crisis, etc. These are all great years to liquidate a large position and take the capital gain, but what if you've used up all the good stuff on your incremental selling strategy? I don't know what the stats are income-stability but I imagine a good 30ish% of people will at least have 1 or 2 low income years over the course of a 30-40 year career due to the above circumstances. This "risk" should be factored into the equation as well.

Perhaps if one is age 45+, has a very well defined career and income path, a growing portfolio, and can start to envision how the remainder of life will unfold with some degree of accuracy, then they could begin to think about this strategy? For those in their 20s or 30s (the perspective I am working from in deciding if such a strategy would be wise for me to employ in the coming years) this seems like an impossibly complex calculation to perform, and could just as easily end up costing someone more than it saves them, if any of their assumptions are off by even a smidgen. 

Thoughts?


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## donald (Apr 18, 2011)

I understand the importance of forethought but this discussion seems like putting the cart before the horse(secondly imo I wouldn't let my 'heirs' 'problem' If you can call it that to dictate my portfolio in my accumulation stage).
Way to much importance placed on the benefactors.
I have a friend in his late 30's that owns and operates a multi-million commercial contracting firm(it would likely be a mess for his spouse to properly de-vest it if something were to happen and she become principal but having said that why would a business owner focus on scenario's where there are decades away.
Before one gets carried away maybe wait to have the 'problem' of 1000 point gains on holdings lol
To much emphasis given to 'parties' that are not involved until a 'calamity' in regards to the op
Maybe I have a bias of my thought process as a gen x


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## humble_pie (Jun 7, 2009)

yes, you're right. conversation did get off the track. so sorry.

i was just replying to remarks others had made about the capital gains taxation issues/ joys/ horrors/ pleasures/ problems inherent in owning a great big bunch of rich old stocks in the latter years of one's life.


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## AltaRed (Jun 8, 2009)

The issue is to recognize there will most likely be a transition at some time to simplify financial affairs (assuming one lives to a ripe old age and does not get hit by a bus this afternoon) and to start thinking about how/when that will occur early enough in one's life to do it as tax efficiently as practical at the time. 

Few, if any, think about such things as they are establishing themselves and while they are young enough to think they are control forever. Things start to change in one's 60s regardless of beleifs in one's 30s. Just have to look at retirement communities to see that complex business/financial arrangements are not anywhere near the top of the list of enjoyable things to do. It would be rare for one in their 80s to be remotely interested in managing a stock portfolio over optimizing quality of life.


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## humble_pie (Jun 7, 2009)

^^

i don't know any retirement communities so have nothing to compare to.

but last week i was talking to one of the brightest young stars ever to adorn any discount brokerage anywhere in canada. What he does with his own investments is flabbergasting. I love hearing about it. He plans to retire, a multi-millionnaire, at the age of 35. Right now he's still in his 20s.

we talked about the 92-year-old broker client who used to phone the agents from his nursing home in the evening, laptop in hand, orders ready to enter, when he knew the agents wouldn't be so busy.

"that'll be me," said my 27-year-old contact (i believe he was adjusting corn futures as we spoke.) "I'll never stop."

of course, the rule of thumb is exactly what altaRed says. Plan well. Cover all bases. Plan for a lifetime. 

but i say Don't lose track of the stars, though. We need at least one little fun thing to aim for.


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## donald (Apr 18, 2011)

Op is in prime time(30's-late 30's)
Yes one has to plan but not at the expensive of one's self
Chances are high the heirs might not even be born yet(we are already assuming the op is aiming for legacy money)
I am sure OP has insurance in place(his spouse is her 30's also)
This is not a 'retirement 'couple'
They have not even reached the snack shack at the turn yet lol
It is hard to find a problem with op's plan(except this one issue of complexity)
I personally wouldn't change course if I was the op because of the issue
There is no way Alta in your 30's you were thinking this way?it is not natural imo
We should not be quick to discredit op's wife either(becoming principal of said portf in the event she finds herself in control of it)
One can 'disaster proof one's life I agree but not to this excess 
My 2 c

It wouldn't be optimal of course but that shouldn't even factor at this point
assuming op is statistical(high probability) and not a outlier(early death say)


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## humble_pie (Jun 7, 2009)

peterk said:


> Ah, so ...



peterk excellent point about how later-years capital gains adjustments don't really matter to a young investor, for all the reasons you set forth. Great stuff! thankx for the insight.

however, late in life or early in life, the ACB of a stock is always important to an option writer. Monitoring ACB of underlying stocks is almost as important as monitoring margin. This has nothing to do with estate planning or heirs.

short calls can be exercised at any time & any stock to be called away will be a taxable event. If such stock has undergone huge appreciation, an option writer could suddenly have the full taxable gain triggered by a counterparty without warning. This is always undesirable. Just the chaotic unplanned aspect of a huge gain explosion is undesirable.

hence, option traders use several different strategies to control this problem of premature capital gains.

i described one strategy. It's to keep the ACB up. I usually aspire to keep mine something like 30-40% below the market prices of the underlying stocks. I say "aspire" because ii'm nowhere near as organized as the efficient machine you're describing, ie a person who manages to keep his equations & his data all tickety-boo.




peterk said:


> ... working against it ... that you are trading a future liability for a present liability, and giving up all the investment growth that those present funds could have earned over the coming decades?



no, the strategy of flipping one or 2 lots of stock every year to boost ACB does *not* mean sacrificing future investment growth returns. The flipping strategy means that the investor remains totally invested at all times, save & except for a few minutes during the flip.

for example, suppose he starts with 1000 shares that had cost $40 each, for a total ACB of 40,000. Market price on these shares is now 90.

he sells 200. Cost of remaining 800 shares is now 32,000.

he immediately buys 200 shares to replace at 90. Cost this purchase 18,000. Total ACB is now (18,000 + 32,000) or 50,000. New ACB per share is now $50.

see? one little flip & he's boosted cost per share from $40 to $50. He still owns 1000 shares.

it's true he took a small gain in the above example. He sold 200 shares for 18,000. His gain is (18,000-8,000), or $10,000. His taxable gain on this will be $5,000. He's already checked so he knows this won't boost him into the next higher tax bracket.

the above flipping strategy can be used by anyone who has something like $200,000 or more in unrealized capital gains to protect. Note this figure is gains, not total portfolio value (which would be higher.)

the investor with big gains can eliminate the risk of punishingly high capital gains tax resulting from mass stock disposal several years down the road, if he keeps trimming his portfolio in the above manner.


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## peterk (May 16, 2010)

humble_pie said:


> short calls can be exercised at any time & any stock to be called away will be a taxable event. If such stock has undergone huge appreciation, an option writer could suddenly have the full taxable gain triggered by a counterparty without warning. This is always undesirable. Just the chaotic unplanned aspect of a huge gain explosion is undesirable.


Ah, that is the angle I'm missing out on. Options! (Is the answer to everything always "about options"? :biggrin: ). So doing this essentially mitigates the risk of a traumatic tax bill during a disastrous call assignment that unexpected takes away your shares and leaves you holding the bag.



> no, the strategy of flipping one or 2 lots of stock every year to boost ACB does *not* mean sacrificing future investment growth returns. The flipping strategy means that the investor remains totally invested at all times, save & except for a few minutes during the flip.
> ...
> His taxable gain on this will be $5,000. He's already checked so he knows this won't boost him into the next higher tax bracket.


Hmm. I don't think that's what I meant, I understand that you are selling and re-buying in quick succession and that your portfolio makeup doesn't change.

I meant the time-value, for the ~$2,000 that your above investor has now paid taxes is gone, and no longer his to grow. Verses keeping the investment intact and growing, and paying ~$2500 in taxes years later when he sells for another reason at an even higher price. Surely that must be made as part of the calculation for this strategy as well. The greater number of year between the two scenarios, the greater the influence the time-value has on the situation. (From the sounds of it this is a decades long strategy, so I imagine the time-value plays a significant role).


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## humble_pie (Jun 7, 2009)

peterk said:


> I meant the time-value, for the ~$2,000 that your above investor has now paid taxes is gone, and no longer his to grow.



good point. The trick, then, would be to sell only 100 shares & pay zip taxes on those. each:

ps in the comparisons i'm thinking of, 2000 in taxes at ordinary marginal rate would not compare to 2500 in taxes years later when taxed at a higher rate.

i've only ever been referring to truly whopping dispositions, where capital gains taxes owing on whopping dispositions push taxpayer into highest brackets both federally & provincially.

these can occur for a variety of reasons. Option assignments, divorces, deaths, departures from the homeland & just plain old age. Of the 5, i'd prefer the first one.


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## humble_pie (Jun 7, 2009)

peterk said:


> ... a traumatic tax bill during a disastrous call assignment that unexpected takes away your shares and leaves you holding the bag



chouette! you've described me perfectly, every little once in a while. How did you know?


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## peterk (May 16, 2010)

humble_pie said:


> i've only ever been referring to truly whopping dispositions, where capital gains taxes owing on whopping dispositions push taxpayer into highest brackets both federally & provincially.


So then I suppose doing this really only benefits someone who is a low to moderate income earner. If your employment income already puts you in one of the higher or highest tax brackets then booking capital gains now will have little or no effect compared to booking capital gains later. Assuming "Option assignments, divorces, deaths, departures from the homeland", don't come into play, of course.


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## humble_pie (Jun 7, 2009)

peterk said:


> So then I suppose doing this really only benefits someone who is a low to moderate income earner. If your employment income already puts you in one of the higher or highest tax brackets then booking capital gains now will have little or no effect compared to booking capital gains later. Assuming "Option assignments, divorces, deaths, departures from the homeland", don't come into play, of course.



excellent observation


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## AltaRed (Jun 8, 2009)

donald said:


> Op is in prime time(30's-late 30's)
> Yes one has to plan but not at the expensive of one's self
> Chances are high the heirs might not even be born yet(we are already assuming the op is aiming for legacy money)
> I am sure OP has insurance in place(his spouse is her 30's also)
> ...


My comments were not directed so much at the OP than as a 'learning' for investors in general. Take it for what it is worth. 

I am merely pointing out something the OP might think about, probably somewhat later in life. That could result in an investor starting to opt for investing in ETFs at some time earlier than one might otherwise, rather than making additional investments in individual stocks. I started to think about the issue in my late 50s... which has beome more problematic. Knowing what I know now at 66, I would have focused more attention on investing in ETFs at least 10-15 years ago, rather than individual stocks.

Added: I suffered through a deemed disposition in the year 2003 when I went ex-pat. When I returned in 2006 and reset my ACB, I should have converted my stocks completely to ETFs at that time before I accrued huge capital gains in Cdn stocks. At least I had the smarts to invest in ETFs for my ex-Canada holdings so have the 50% solution in hand.


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## humble_pie (Jun 7, 2009)

as we have seen, large bundles of actual sales or deemed dispositions of valuable securities can occur on a number of occasions along life's continuum.

in almost every case, advance planning, sometimes accompanied by advance action, can make the high tax rate brought on by these dispositions less painful.

among the tax-triggering events: 


option assignments
permanent departure from canada
sell stock to buy a house
divorce
physical injury or illness to self, spouse or family member
estate planning
interdiction for mental incompetence
death



of the eight, i think i'm OK with the first 2.

as for the others, as HL Mencken famously said, All in all i'd rather be in philadelphia


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## londoncalling (Sep 17, 2011)

I am 20 - 25 years away from retirement. Currently my holdings are in RRSP,TFSA and RESP. The above has little effect on me until I start acquiring equities in a non registered account. However, I am grateful to learn this now than in 30 years. I most likely would have accumulated a pile of stocks at a low ACB and paid for it later. May be off topic but still useful to some.
I am also in a position where my spouse would not want to nor know how to handle my portfolio in the event of my absence from this earth. I should consider a similar set of instructions as per the letter in the link above.

Cheers


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## OhGreatGuru (May 24, 2009)

45 holdings is twice what most sources recommend for a stock portfolio - are you trying to create your own mutual fund?

It seems to me you have things back to front. You are saying: "Here's my portfolio of 45 stocks; what's my asset allocation and what do you think of it?"

Instead, you should be asking yourself "What is/should be my target asset allocation, and do these stocks fulfill that target? (without unnecessary redundancy)"


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## spongewen (Nov 26, 2015)

jaybee said:


> So, I'm looking for some feed back on the following stock portfolio. The value of the portfolio as of today is about $600,000.00 Cdn. About $420,000.00 in Canadian stocks, with the remainder being in US stocks.
> 
> The following are the holdings and their percentage of the portfolio:
> 
> Any feedback would be appreciated


Can't see the attached image,or is that just me?


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## CPA Candidate (Dec 15, 2013)

spongewen said:


> Can't see the attached image,or is that just me?


Probably need more posts.

When considering a portfolio's geographic distribution, almost everyone makes the mistake of thinking a Canadian listed name is primarily economically exposed to Canada. I own several Canadian listed names that are primarily exposed to the US economy. 

Similarly, they look at a US company like Apple and think they are investing in the US. The reality is most big SP500 companies are global companies domiciled in the US.


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## My Own Advisor (Sep 24, 2012)

humble_pie said:


> so sorry, but cannot agree! When invested assets have appreciated by thousands of percentage points, the capital gains tax owing if such assets are sold will push the investor into a higher tax bracket. Never mind that gains themselves are only 50% taxable, the addition of gains in amounts as low as $100k can push investor into a higher bracket that will apply to his entire income.
> 
> altaRed says that many older investors have this Problem.


I'm sorry HP, but if you have a "tax problem" in retirement it means you saved enough - this is an excellent problem to have!


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## HaroldCrump (Jun 10, 2009)

My Own Advisor said:


> I'm sorry HP, but if you have a "tax problem" in retirement it means you saved enough - this is an excellent problem to have!


MOA, I respectfully disagree.
Having a tax bill at retirement does not necessarily mean that retiree has "_saved enough_" i.e. able to have the desired lifestyle, after taxes.
By _desired lifestyle_, I mean a certain % of income replacement.

Tax tiers, rates, and senior benefits are political football - we don't know what tax rules will exist 25 - 30 years from now when the sandwich generation (i.e. us) are ready to retire.

Just a couple of examples - note the political football being played with mandatory RRIF withdrawal rules, OAS eligibility ages, talk of increasing clawbacks, etc.
Unlike CPP, which is a pension fund, these other factors sway with the wind of govt. deficits & ideology of the year.

Anyhow, every effort should be made to minimize potential taxes in retirement (legally, of course) - and then some.
Give yourself some margin of error in case tax tiers move up/down, age credits & clawbacks move up/down, etc.


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## humble_pie (Jun 7, 2009)

My Own Advisor said:


> I'm sorry HP, but if you have a "tax problem" in retirement it means you saved enough - this is an excellent problem to have!



it's not as simplistic as that. You can see altaRed posting about the same problem. t's a very real problem for anyone who has older holdings with high notional capital gains on paper, therefore they feel hamstrung. Their estates are certainly going to be hamstrung.

i think this is the thread where peterk weighed in with some excellent insights from the youth perspective?

i haven't read harold's yet ... usually save the harold-type solid-golds for after supper.

for now, no problems in retirement are excellent to have. There are easy ways around this one, i carefully suggested one workaround upthread. If you wish to ignore, that's you!


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## My Own Advisor (Sep 24, 2012)

I guess the point I'm trying to make, for the most part is, if you pay a great deal in taxes, you likely have a high income or lots of assets that are taxed.

I'm not saying taxes aren't a headache. Taxes are a headache and a necessary evil. I am saying if you're paying lots of taxes on RRIF withdrawals, you have OAS clawbacks, etc. then you probably don't have an income problem in retirement. 

Income problem in retirement = bad.
No income problem in retirement = good.

Sure, you always want to minimize taxes _at any age._ As a senior, if you have 1) your health , 2) your family and then 3) you have to pay taxes on your sizeable income or portfolio, _there are certainly worse problems to have in retirement._

I welcome the dialogue.


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## jaybee (Nov 28, 2014)

OhGreatGuru said:


> 45 holdings is twice what most sources recommend for a stock portfolio - are you trying to create your own mutual fund?
> 
> It seems to me you have things back to front. You are saying: "Here's my portfolio of 45 stocks; what's my asset allocation and what do you think of it?"
> 
> Instead, you should be asking yourself "What is/should be my target asset allocation, and do these stocks fulfill that target? (without unnecessary redundancy)"


I know this an old thread, but I didn't notice this post before. 

So, what if am trying create my own mutual fund? It's helped me build up a sizable portfolio. I've been getting great returns, and hey, there are worse hobbies. And no MER's

I've made a few changes to the portfolio, since I started this thread. Notably, I sold some losers at a break even price (Russel Metals, Bank of America), and put some money into Thor Industries which has had a nice little run since. 

I've also started selling covered calls here and there.


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## james4beach (Nov 15, 2012)

My Own Advisor said:


> It's hard to argue with jaybee's success. I mean, > $600k invested and a paid off house in late-30s? Really? Awesome.


I don't follow that logic. His financial position is great, but I doubt that came from excellent stock picks. It probably came from high income and/or inheritance. Would jaybee have been worse off with an index ETF portfolio?

jaybee: given the amount of money you're dealing with, I suggesting having two separate accounts. One with the self-managed stock portfolio, and another with a standard couch potato approach with matching exposure (% US, % Canada). Track them both over time and see which is performing better in 10 years.

There's nothing inherently wrong about the stock picks but only properly tracking these over time will show you the real story. For example, my dad was certain for the last 30 years that he had great performance from his mutual funds. Only an apples-to-apples comparison with index ETFs shows how poor the performance actually was. There's also the problem of long term stamina. You might get lucky and select some good stocks in a 5 year period, but repeatedly doing this for decades on end is a different matter. The indices benefit by adding new up-and-coming companies all the time; are you also constantly looking to find the NEW great performers to add to your fund?


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## AltaRed (Jun 8, 2009)

Jaybee, you still have to have a plan wrt to asset allocation, sectors and geographic regions..... never mind also needing strategies around specific financial metrics (i.e. model), including when to buy and when to sell. IOW, your 'mutual fund' has to be based on certain principles. 

At 45 stocks, you cannot possibly understand each one to the detail required to make decisions based on fundamentals. Do you thus make your decisions based primarily on stock screeners?


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## jaybee (Nov 28, 2014)

james4beach said:


> I don't follow that logic. His financial position is great, but I doubt that came from excellent stock picks. It probably came from high income and/or inheritance. Would jaybee have been worse off with an index ETF portfolio?
> 
> jaybee: given the amount of money you're dealing with, I suggesting having two separate accounts. One with the self-managed stock portfolio, and another with a standard couch potato approach with matching exposure (% US, % Canada). Track them both over time and see which is performing better in 10 years.
> 
> There's nothing inherently wrong about the stock picks but only properly tracking these over time will show you the real story. For example, my dad was certain for the last 30 years that he had great performance from his mutual funds. Only an apples-to-apples comparison with index ETFs shows how poor the performance actually was. There's also the problem of long term stamina. You might get lucky and select some good stocks in a 5 year period, but repeatedly doing this for decades on end is a different matter. The indices benefit by adding new up-and-coming companies all the time; are you also constantly looking to find the NEW great performers to add to your fund?


I did inherit 30k or so during the financial crisis in which I invested in TD and RY, and a bit of GE. Keep in mind though that the rest of my portfolio was decimated, just like everybody else.I make 65k per year.


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## jaybee (Nov 28, 2014)

AltaRed said:


> Jaybee, you still have to have a plan wrt to asset allocation, sectors and geographic regions..... never mind also needing strategies around specific financial metrics (i.e. model), including when to buy and when to sell. IOW, your 'mutual fund' has to be based on certain principles.
> 
> At 45 stocks, you cannot possibly understand each one to the detail required to make decisions based on fundamentals. Do you thus make your decisions based primarily on stock screeners?


I do use screens yes. But a large portion of my portfolio doesn't require a lot of attention. Maybe I screen in a growth stock that I like, and I'll add a stop, to limit the downside at 10 percent. And maybe, I'll sell at a 30 percent profit...whichever comes first. In the meantime I'll collect the divvies. I automate that piece of it.

Another portion of the portfolio is buy and hold. Like Emera for example. I've owned for over fifteen years. Dividends, plus a steady growth in a stable regulated environment.


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## james4beach (Nov 15, 2012)

jaybee, congrats again on building up this much wealth. It's really impressive. I know people making 90K who barely have been able to save up 100K. You're ahead of the game.

Debt hasn't been mentioned here, but you may want to pay off any debts (e.g. mortgage) you have.


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## jaybee (Nov 28, 2014)

Thanks James.

Still have a bit of mortgage debt between the two properties. I should retire that for sure. It's just not as fun lol.

The comments up thread are fair indeed. I spend probably more time following these stocks, and managing our portfolios than what is healthy. But hey, I could spend my time doing worse things. It's a hobby. Both my wife, and I have defined benefit pension plans, so I'm trying to beat the index with our other savings, as a challenge. Since I started tracking it 2008, I have done that. Some years I don't, some years I do, but since 2008 I have in aggregate.


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## james4beach (Nov 15, 2012)

8 years of beating the index is awfully good!

If you don't mind me asking, what kind of industry do you and your wife work in? Is it government? Just curious where the DB pensions still are, because I'd love to get one.


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