I have been doing a lot of reading lately and listening to financial news. I just finished reading “Crash Proof 2.0″ and “How An Economy Grows” both by Peter Schiff who is an investment advisor famous for predicting the real estate crash in the U.S.
The recurring theme I keep hearing is that markets are going to be trading sideways for the foreseeable future. This isn’t the time to be in small speculative investments, but rather in larger stable companies that will pay you cash dividends while we all wait for the economy to recover. Peter Schiff put it this way:
“…a quality stock backed by a strong balance sheet, paying a good dividend, and bought at a favourable price is an ideal candidate for a buy-and-hold strategy. It will pay dividends in markets that are up or down, and if those dividends are reinvested and allowed to compound, your wealth will grow.”
“It’s overpaying for low-yielding stocks and holding and hoping for speculative gains that does not work. If you buy value and collect high dividends, you can hold quality stocks forever and make out like a bandit.”
And on BNN this week, John Stephenson from First Asset Management said:
“The euro zone crisis is accelerating with the potential increasing that Europe’s leaders will be unable to stem the crisis. In this environment, investors should de-risk their portfolios by buying good quality dividend-paying corporations and avoiding stocks with commodity risk.”
I have decided to do a little re-balancing of my own investments. I sold 1/3 of my “gambling stocks” and am going to reinvest the money in a natural gas company. These companies are way down right now so there is large upside potential and a high dividend yield. Looking at VET-T or ARX-T. (Note: ARX-T up 6.7% since writing this post)
Vermilion Energy pays a monthly dividend and has a DRIP plan which is music to my ears.
Since the rest of my stock portfolio is already in large cap Canadian companies that pay dividends, I turned my attention to my acting union’s group RRSP.
I am invested in something called the “Aggressive Continuum” which sounds like a Schwarzenegger movie, but I though was invested in growth stocks. As it turns out, it’s a mutual fund that’s invested in… wait for it… other mutual funds!!!
Gee I wonder how many hidden fees I am paying with all those layers of transactions? No wonder it’s 5 year rate of return is -1.71%.
Here are the fund’s top 10 holdings:
- Greystone Canadian Equity Fund
- Sprucegrove Global Equity Fund
- McLean Budden Canadian Equity Value Fund
- Trimark Global Equity Fund
- Leith Wheeler Canadian Equity Fund
- SRA Canadian Equity Fund
- GWLIM Real Estate Fund
- Jarislowsky Fraser U.S. Equity Fund
- Bona Vista Canadian Equity Fund
- Montrusco Bolton Growth Equity Fund
I don’t need to look any further to know that many of those funds are all holding the same stocks. This is what I call over-diversified. I moved my money out of this mutual fund and split it between 2 funds called the Canadian Equity Fund and the Foreign Equity Fund.
My new top holdings:
- Royal Bank
- TD Bank
- Bank of Nova Scotia
- Suncor Energy
- Potash Corp.
- Bank of Montreal
- Johnson & Johnson
- Berkshire Hathaway (Warren Buffet’s company)
- IBM Corp.
Ok, now I can sleep at night. Look at that, a list of real companies that I know and can follow. To be honest the average rate of return over the past 5 years hasn’t been much better in these funds, but I feel better knowing I have a clear understanding of what I own. I also think these large dividend paying blue chip companies should hold up well during the next 5-10 years.
As always remember that I am not a certified financial planner and I am not recommending you buy or sell any securities. I am only showing you the thought process I use in my own investing.
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