Dear Nancy Woods,
I have been investing in a couple of exchange traded funds after my experience with mutual funds did not do very well for me. Now that I have owned index ETFs for the past two years, the results are not any better. What am I doing wrong? I'm looking for dividends and some growth on my money. Signed Ed
The key to designing a portfolio is diversification. Not only diversification across various sectors, but asset classes, instrument types, maturities and class of shares.
What that means is that you don't have to invest in just one type of investment like you have been. Consider keeping your best ETF and adding individual blue-chip dividend paying stocks, growth stocks, GICs, bonds, preferred shares and a mutual fund or two. I find having a variety of investment vehicles is beneficial.
Defining your objective with a target income amount helps too. For example, if you are realistic and try to receive an income of 4 per cent there are many investments where you can receive that. If you find an investment that only pays 2 per cent, then check its growth to see if it has the potential to rise 2 per cent in value. If it does, then it may be a suitable investment for you. If not, then pass on it because it does not meet your criteria. Of course there is always an exception to the rule, but this gives you a good jumping off point.
Right now with low growth in the economy, it is best that you do not have high price appreciation expectations so you won't be disappointed.
Bear in mind the taxation differences between interest income, dividend income, return of capital income, and income from a registered plan. Being knowledgeable about this is important because taxes can greatly eat into your return.
I find the key to investing in uncertain times such as these is to know what you own and understand why you own it.
Seeking some professional and experienced advice is also key. If you are a do-it-yourself investor, consider someone who charges fee-for-service to get you started with a portfolio design. If you need continued guidance then a full-service brokerage is the answer. There generally is not a "set it and forget it" method to investing. It requires periodic reviewing and fine tuning to adjust for market and economic changes. That requires time. That is either your time or someone else's that you pay to do it for you.
Nancy Woods, CIM, FCSI is an associate portfolio manager and investment adviser with RBC Dominion Securities Inc. To register your interest for an upcoming seminar, "What are the Questions Your Advisor is NOT Asking You?" visit her website nancywoods.com. To ask her a question, send an e-mail to email@example.com.