How many stocks should you own? I get this question often from readers.
If you’re an indexer the answer is probably as many as possible. In The Investor’s Manifesto author William Bernstein writes “since we cannot predict in advance which stock and bond asset classes will perform the best, we diversify.” Investors can therefore reduce stock ownership risk by owing the whole market not just a few select companies. Seems like a smart thing to do, so I follow Bernstein’s advice. I own thousands of companies via my low-cost, broad market indexed products and I have no intention of changing or selling those products. Each quarter, distributions from these products are paid and reinvested to buy more units. This compounding machine for a few of our Exchange Traded Funds (ETFs) was set in motion 4-5 years ago and forms the foundation of our Registered Retirement Savings Plans (RRSPs).
With our Tax Free Savings Accounts (TFSAs) and taxable accounts there is a different story – we focus on Canadian stocks, particularly those that pay dividends and have been doing so for decades. The Canadian market is a rather small market on the world stage (it represents about 4%) so I feel rather comfortable owning the largest Canadian banks, insurance companies, telcos, utilities and resource companies as part of my dividend stock portfolio.
In his now famous tome The Intelligent Investor, Benjamin Graham argued that a portfolio of 10 to 30 stocks provided adequate diversification. If only speaking to the Canadian market, I might agree. It should be noted that Graham’s stocks were not selected at random but instead based on a number of careful business metrics and more importantly these stocks were bought at prices that provided a “margin of safety”.
Beyond Graham modern financial academics suggest that no less than 50, or even 100 stocks will provide ample diversification and if speaking about domestic and international equities I could see that argument. Then again, the best stock diversification is to own the whole market.
As a buy-and-hold dividend growth investor I’ve been very comfortable to date with my 30 Canadian holdings. These are not companies I trade in and out of. I have purchased these companies to reinvest the dividends paid each month and quarter for cash flow, and I hold them for rising dividends over time. I don’t pour over financial statements or read the latest business news on them. I simply let the companies work for me so hopefully, someday, I don’t have to.
Should the companies we own continue to pay dividends at their current rate, with no changes, we can expect to earn just over $11,200 this year from our rather boring basket of Canadian stocks; averaging close to $940 per month for future retirement expenses.
Not every investor is comfortable with owning individual companies, I’m not. This is why Exchange Traded Funds (ETFs) complement the dividend stocks we own for the foreseeable future providing additional diversification for rock-bottom costs.
How are your retirement plans coming along? What are you investing in for cash flow?
That’s great. All the best in your journey to retirement .Its always pleasure to read your blog.
Always great to hear from you, and thanks. I hope things are well Inderpreet. Write again when you can!
Wow, getting pretty close to $1,000 per month. Good progress!
Yes, getting there. We hope to cross the barrier by adding new money in 2016.
Great job Mark with over 11k a year you’re doing mighty fine.
Thanks – we’re working on it!
How do people account for larger conglomerates? For example, I own a lot of BAM but because they are so diversified already. I sometimes think of them as more of a mutual fund. I really only hold 12 stocks (3 being banks so not all that diversified) with a couple of ETFs (1 Can and 1 U.S.), several debentures and some minuscule GICs . I also have a medium DB pension ergo a little risk is tolerable.
I think some risk is tolerable with a DB pension for sure, certainly you can take on more risk (more equities) than those that don’t have a pension of any kind.
BAM is like a small mutual fund. I like to think of them this way myself. I see GE as a similar “fund” since it sells multiple products to the world and is quite diversified in many industries. It’s more of an international stock. This is a good thing for investors.
Good for you Mark – your stock and ETF combinations are an interesting way of investing.
I’ll be indexing more going forward with more U.S. and International ETFs in my portfolio. It only makes sense to do so I think…decrease my risk as I get older.
You’re killing it. Almost at $1,000 per month there. That’s fantastic. Life-changing money right there.
Keep it up!
Almost there, yes! Hopefully we can cross that barrier in early 2016.
Thanks for sharking Mark. Slow and Steady will win this for sure.
I like your strategy as I’m in the same boat. I like individual stocks and will ETF for everything else. ETF’s definitely has a space in our portfolios.
Keep up the hustle and awesome to travel this journey with you. Cheers.
Thanks for the kind words. Just trying to stay disciplined for long enough to make this journey work!
Nice job on over 11k in dividend income. I’m on track for about 8k this year and, with any luck, I’ll be able to buy some great companies with juicy dividends this Fall. Thanks for sharing and have a great long weekend.
Thanks…the retirement plan is on full motion I just need time in the market to realize our goals. Good luck on your investing as well.
Nice forward dividends. You’re ahead of me by a couple hundred/month. Studies have shown that once you hit 15 stocks, you tend to eliminate most non-systemic risk, so 30 will do ya fine. I have 71 currently, and will probably top out at about 100–just too many great ideas I want to be a part of.
So long as you’re investing, and not “trading,” then I think the upper end can be pretty much as high as you want.
Wow, 71 stocks seems like a bundle. I probably will top out at 40 or so stocks. That’s plenty for me. Definitely not a trader here. Thanks for the comment Eric and good luck on the journey.
Way to go Mark.
Time for a celebration at 1K.
940 average per month is a pretty solid number. Getting very close to $1k per month there Mark. 🙂
Thanks, can’t spend any of it now, it must be all reinvested for retirement.