I Only Have Ten Minutes and Don't Want To Read This Entire Page - Can You Teach Me All You Know (or All I Need To Know)?

Well, not everything but certainly all the fundamentals.  Here is my primer on investing in four charts.

1. Don't be afraid to invest.  If you keep all your savings in cash, you might sleep well at night.  But you might wake up 20 years from now and realize that your money, in terms of spending power,  is only worth 1/2 to 1/3 of where it started out.  This chart shows what happens if you keep all your money in cash compared to the growth of investing in the other major asset categories. 

2. Be patient. Your returns are not going to come easily, quickly, or necessarily consistently.  However, as this chart shows, over time your average returns will certainly show a degree of consistency and growth if you remain patient.

3. Asset Allocation. Strict asset allocation has been the foundation of successful investing for decades.  No one can predict which asset classes will go up in any year nor the degree of growth (or loss).  But if you follow a strict asset allocation model, you'll always be "buying low" and "selling high".  This chart illustrates how hard it is to predict in advance the performance of each asset class, which is why asset allocation (and diversification) is so important.

4. Stay Invested. Don't try to time the market and don't bail out at the first sign of a downturn.  In today's world of instant news and stock market volatility, most investment gains come over a very small number of days, as displayed in this chart, and if you "miss" those days, you could affect your returns for years to come.

Hopefully, you are now really excited and ready to read on!  But if not, you likely have the fundamentals that you need.

The Foundation - Asset Allocation

I follow a simple and very rigid asset allocation model. A fairly long but readable introduction to asset allocation can be found here. Based on my own tolerance for risk along with my needs for income and capital growth, I have set a specific allocation as follows:

Fixed Income	48%
US Equity	24%
Canadian Equity	18%
Foreign Equity - EAFE	3%
Foreign Equity - Emerging Markets	2%
Real Estate	5%

I rebalance each quarter to these exact numbers. I do not time the market.  Within a few days of the quarter-end, I re-calculate my asset allocation and promptly rebalance.

If I purchase a stock during a quarter, I sell an equal amount of another stock to keep the allocation intact.

The fixed income portion of the portfolio is simply a ten year laddered bond portfolio, with 10% of the portfolio reaching maturity in each of the next ten years.  When a bond reaches maturity, subject to rebalancing the entire portfolio, the proceeds are simply re-invested in a new bond maturing in 10 years.  I tend to hold all bonds to maturity unless I have to sell in order to maintain my asset allocation.  This way, I really am not subject to fluctuations in bond prices, and also get to average my fixed income investments at differing interest rates. I tend to purchase mainly provincial and municipal bonds, with some high grade corporate bonds also in the mix.  

The equity portion of the portfolio is invested in conservative, generally dividend paying stocks.  About half are U.S. stocks.  My detailed equity portfolio is outlined below.

The real estate portion refers to liquid real estate holdings, generally Real Estate Investment Trusts.

The foreign stock portion are generally ETFs focusing on a particular non-North American region.

I attribute 80% or more of my investment return to this rigorous rebalancing. It has not always been easy (1987 market crash, 1997 Asian crisis, 2000 internet crash, September 11th,  2008 financial crisis, 2020 Covid-19 pandemic), but it has always turned out well (in the longer run).

Individual Stocks, ETFs, or Mutual Funds?

I like to purchase individual stocks, but I'm not convinced that they necessarily out-perform market index Exchange Traded Funds ( ETFs) or low-cost mutual funds.  I enjoy doing research on companies, as I've spent much of my  business career evaluating businesses.  It does take work, though.  

That being said, I don't disagree with Warren Buffet's advice to his wife on how to invest his billions upon his passing:

"My advice to the trustee could not be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard’s.) I believe the trust’s long-term results from this policy will be superior to those attained by most investors – whether pension funds, institutions or individuals – who employ high-fee managers."

I have also started using a "Robo Advisor", for both some of my own holdings, and many clients are also using one. They follow a very strict asset allocation model using low-cost ETFs.  I have put some of my assets into one of them, Wealthsimple, and their performance so far has been good.

How I Pick Stocks

1. I have to be able to explain in one sentence why I own the stock.

2. I plan to hold it forever (although that usually does not happen).

3. If it does not pay a dividend, there has to be a VERY good reason to buy the stock. Read this excellent article on dividend investing to learn more.

4. I prefer companies with recurring revenues (such as pharmaceuticals, Waste Management) as opposed to manufacturers and companies where products are purchased sporadically.

5. I favor companies that take advantage of a major demographic trend (such as Baby Boomers).

6. In spite of spending most of my life in technology, I don't purchase very many technology stocks. I own a smattering (Apple, Google), but they tend to be underweighted. Technology moves too quickly for me and owning a technology stock might violate my first rule above.

Rules I Follow Religiously

1. I invest first and foremost for total return over my lifetime as opposed to tax-advantages in the short term.  In other words, I let my overall investment strategy set my course.  Once I set my strategy, I do aim for tax benefits, but it never drives my decisions.  I see too many clients investing for short term tax advantages, to the detriment of their long-term wealth building.  For example, many of my Canadian clients have upwards of 90-100% of their equities in the Canadian market, due to the tax benefits of Canadian dividends.  Yet they are missing out on significant gains (and diversification) by ignoring the U.S. and global markets.
2. The portion of my assets that are in equities are ALWAYS 100% invested in the market.  See the chart on this page for an explanation why.
3. I never have more than 5% of my investible assets in any one stock or bond.
4. I normally buy equal amounts of all holdings except for my "speculative" stocks, which are very small amounts.
5. My speculative stocks, if any, make up less than 2% of my liquid assets. I currently hold some shares in a private, alternative energy company.
6. My bonds are high-grade provincial, municipal, and corporate bonds.  I never chase yield, in that the reason I hold bonds is for safety and preservation of capital.  I have never had a bond holding default.
7. I keep my fees low.  I use a discount broker and simply pay $9.99/trade.  For managed accounts, I try to keep my clients' cost well under 1% of total assets under management, and closer to 0.50% is preferred. In a low interest environment like we have been in for years, you simply cannot afford either direct or hidden fees of 2% or more as you are likely to end up losing money after taxes and inflation.

My Portfolio

My portfolio as of March 19, 2022 is shown below. The year that I first purchased my current holding is displayed, followed by the overall investment return since the stock was purchased, and then the current dividend yield (if any) is shown. The Canadian side is up a cumulative 159%, while the US side is up 175% (in US dollars - in Canadian dollars it is up close to 220%). None of this is really brilliant stock selection - rather it is simply "sticking with the plan". The effect of being a buyer when stocks were way down in 2008 is still evident in the portfolio, as well as sticking to the plan through the COVID-19 plunge in March, 2020. I will update this from time to time.

NOTE: the % yield shown is the current yield. The actual yield that I am receiving on my original investment is often much greater.  For example, while the TD Bank yields 3.6%, I have owned the stock for so long and it has risen so much since my original purchase that I am yielding more than 20% on my original cost. Many of my stocks are yielding over 10% on the original cost, and this will only keep going up. THIS SHOWS THE POWER OF PURCHASING SOLID, DIVIDEND PAYING STOCKS, AND SIMPLY HOLDING ONTO THEM FOREVER!

My Canadian stocks are all very conservative, dividend paying companies. I take advantage of the dividend tax credit that favors Canadian dividends. My U.S. holdings are more diversified, and while there is no advantageous dividend tax treatment, I have benefited from the overall rise in the U.S. market as well as the rise of the U.S. dollar. All in all, my U.S. stocks have significantly outperformed my Canadian holdings. I  have several non-dividend paying U.S. stocks, but they are either small holdings or “necessary” tech holdings (Google).