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I’m not doing well managing my investments. What should I change?

Dear Nancy Woods,

I am a 68-year-old retiree. I am single and have a company pension that more than meets my expense needs. My portfolio is currently worth about $163,000. It consists of a cash account with $59,000, an RSP worth $76,000 and a TFSA worth $28,000. I used to use a mutual fund salesman for advice but found that he got me nowhere. Now I make my own investment decisions.

I am starting to question how good a job I'm doing. In these accounts I have various stocks and ETFs. I have nine stocks, two mutual funds and 14 ETFs. I've watched the market shoot up and recently pull-back. I'm still not making any money. What should I be changing?

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Bob

Dear Bob,

Since you have a pension income, I would count that as the fixed-income component of your portfolio. The assets in the accounts can be invested in equity holdings.

To me, as much as I like investing via ETFs, you have too many. In my opinion you are over-diversified. I read the advice of an institutional manager that said that there is not a significant incremental benefit to owning more than 20-25 stock holdings. It is what economists refer to as the law of diminishing returns. To loosely apply it to a portfolio means that the marginal benefit that you would get for adding one more holding decreases after the 25th one.

With that said, I would suggest that you choose a couple of ETFs, one covering Canada, one the U.S. You can pick others to invest globally if you wish. Then pick 10 to 15 individual blue chip stocks from sectors that you think are going to improve. Pick quality stocks with a good dividend paying history and growth. Limit your speculative holdings to a very small percentage of your portfolio – I would say five per cent of the total.

(Note: I did have an in-depth conversation with Bob to give him a second opinion on his portfolio. The majority of the stocks he owns are what I would classify as speculative.)

Once your portfolio is cleaned up and starting to perform, be vigilant to sell when a company has had a fundamental change or the macroeconomics indicate a change needs to be made.

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Try to avoid buying stocks just because they are in the news or what you see and hear in the media. You need to do your own research beyond the first recommendation if you are not getting other advice.

Having fewer holdings will be much easier for you to monitor. Hopefully you will start to see an improvement to your portfolio's returns.

Nancy

Nancy Woods is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. Visit her website www.nancywoods.com or send an email request to asknancy@rbc.com. You can send your questions to asknancy@rbc.com as well.

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About the Author

Nancy Woods, CIM, FCSI, is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. More

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