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Investor Education Heinzl’s mailbag: How to diversify across multiple accounts, where to find TSX total returns, and tax advice on global dividend stocks

When holding several investment accounts – for example, non-registered, tax-free savings account, registered retirement savings plan – do I consider the totality of the assets in allocating across sectors or do I view each account as a separate entity and try to diversify across sectors within each individual account?

Diversifying each account is fine, but it may not always be practical. For example, if you’re investing in individual stocks and some of your accounts are relatively small, it may be difficult to achieve adequate diversification without buying very small chunks of each stock – and driving up your commission costs in the process. One solution is to use exchange-traded funds or low-cost index mutual funds to achieve diversification in smaller accounts. Also keep in mind that your preferred asset mix may vary across different accounts. In my kids’ registered education savings plan, for example, I have a higher weighting of cash and guaranteed investment certificates than I do in my RRSP because I’ll likely be tapping the RESP sooner and I’m not comfortable taking as much risk.

But, while fine-tuning the asset mix of each account can be helpful, it’s really the big picture that matters most. I recommend that you consolidate all of your accounts – non-registered, TFSA, RRSP etc. – on one spreadsheet or online portfolio tool so that you can monitor the weighting of each security as a percentage of your total holdings. The rough rule of thumb I use is to not let any one stock exceed about 5 per cent of my total assets, and to cap my exposure to any one sector at about 15 per cent. These numbers aren’t carved in stone; the idea is to establish some general guidelines that will prevent you from going overboard on any single stock or industry and to apply those guidelines to your portfolio as a whole.

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I would like to compare my portfolio’s performance with the total return of the S&P/TSX Composite Index. Where can I find this information?

When the financial media report the performance of the S&P/TSX Composite Index, you’re only getting part of story. That’s because the benchmark index is based on price changes alone and doesn’t include dividends. To get a complete picture, you need to look at the S&P/TSX Total-Return Index, which includes dividends and assumes they’re reinvested along the way.

One place to find the S&P/TSX Total-Return Index is Investing.com (use the ticker: TRGSPTSE). You can create a chart or look up historical values for the index and punch them into your calculator to determine percentage changes over various time periods. For instance, I calculated that the total-return index posted a loss of 8.89 per cent in 2018, compared with a drop of 11.6 per cent for the plain-vanilla S&P/TSX composite. The difference reflects the contribution of dividends to the index’s total return.

Another way to find the total return of the S&P/TSX Composite Index is to look up performance data for an index-tracking exchange-traded fund such as the iShares Core S&P/TSX Capped Composite Index ETF (XIC). On the iShares Canada website, XIC’s 2018 total return is listed as negative 8.83 per cent, and the total return of the S&P/TSX Capped Composite Index – the ETF’s benchmark – is shown as a negative 8.89 per cent, which matches the performance of the total-return index based on Investing.com’s data.

I want to get some more international exposure for my portfolio. Two stocks I’m researching are GlaxoSmithKline PLC and LyondellBasell Industries NV (LYB-NYSE). How can I determine if their dividends are subject to withholding tax?

Companies based in the United Kingdom do not withhold tax on their dividends. The pharmaceutical giant GlaxoSmithKline has its corporate headquarters in Britain, and the chemical and plastics company LyondellBasell moved its tax residency to the U.K. from the Netherlands in 2013. So the dividends should not be subject to withholding tax in either case. If you’re looking to buy dividend stocks in other countries, however, there’s a good chance that withholding tax will apply. So be sure to research the tax implications before you invest. For U.S.-based companies, you can avoid withholding tax by holding your shares in a registered retirement savings plan, registered retirement income fund or other registered retirement account. But be careful: The exemption to withholding tax on U.S. dividends does not apply to tax-free savings accounts or registered education savings plans.

E-mail your questions to jheinzl@globeandmail.com.

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