How many stocks should you own? That’s a question I receive often.
My answer: it depends!
If you’re an indexer the answer is probably as many as possible. In The Investor’s Manifesto author William Bernstein wrote: “since we cannot predict in advance which stock and bond asset classes will perform the best, we diversify.”
That makes sense.
Investors can reduce the risks that come with individual stock ownership by owing the whole market not just a few select companies. This seems like a smart thing to do, so I follow Bernstein’s advice. Sort of.
I believe the Canadian market is not very diverse though. I wrote as much here suggesting investors should consider unbundling their Canadian ETF for income – eventually. That process has already started for me. I’ve created my own Canadian dividend ETF essentially. Going this route I won’t have to worry about ongoing money management fees or MERs for the Canadian portion of my portfolio. Your mileage may vary.
For the rest of our portfolio, outside a few U.S. stocks for dividend income, we invest in low-cost Exchange Traded Funds (ETFs) that cost us little money to own and they provide us a small stream of quarterly distributions that are always reinvested for future income. These ETFs hold thousands of stocks from around the world. They provide that aforementioned diversification Mr. Bernstein says I need outside Canada.
As a buy-and-hold dividend investor I’ve been very comfortable to date with my Canadian holdings. Yes, I’ve had some unfortunate dividend cuts from cyclical oil and gas stocks over the last year but even those days are numbered I believe. What goes down, goes up again, eventually – and I’ll hold until then.
For the rest of our portfolio the dividends just come in, get reinvested, and we don’t think about it.
This time last year I wrote:
“Thanks to Canadian companies that continue to reward shareholders like myself and give us a raise now and then, we’re on pace to earn almost $11,300 one year later. We are only one-third along our journey to meet this retirement goal but I’m confident with more DRIPping and more saving in 2016, we’ll get there eventually and be able to leave the workforce behind in another decade or so.”
This plan remains intact. With no changes, we can expect to earn just over $12,800 this year.
Indexing has been good to us but so has our boring basket of Canadian dividend paying stocks.
How are your retirement plans coming along? What are you investing in for the income you need?