One purchases Equities for the Long...

One purchases Equities for the Long period of time While the Other Holds against Until the Next "Correction"

It would appear that the one and the other members of this couple share a longterm investment horizon. However, they do not look to have the same investment philosophy.

Helen has embraced the principle of investing in equities for long-term growing Since she understands that united cannot time the market, she pervert with money [i]or[/i] gains and holds stocks on the merits of their fundamentals, regardless of market volatility.

On the other hand, Helen describes John as "a doomsayer who is waiting for `the big correction' to purchase back in."

SELF-DIRECTED RRSP PORTFOLIO

Cash and Cash Equivalents

With a lengthy investment horizon, Helen and John should the pair keep cash holdings at the 5-10% horizontal to maximize return.

Both Helen and John (especially) should consider purchasing more equities. If John is in good earnest uncomfortable investing all of his cash in stocks at this time, he can use half of the cash to purchase fixed income investments and/ or cash equivalents and the other half to build initial positions in quality stocks. When a market correction be founds he can then take the opportunity to add to those positions and use the principle of dollar-cost-averaging to bring down the average expense per share.

Fixed Income

Since John might be considering a certain number of fixed income investments, he must locate a time frame in exces of common year for investing these supplys If, like Helen, he decides to maintain a small core position in fixed income securities, then a cipher coupon security (such as the single held by Helen) might be an appropriate choice. Otherwise, he could opt to purchase dominion securities directly, as long as the tranche purchased is at least $10000

Other alternatives include imprisonment funds, which provide the possibility of interest income and capital gains when interest rates decline, or mortgage stores which tend to be les volatile.

Equities

Canadian. Regular readers of Portfolio Coach will remember the four things I encourage all investors to do: ( 1 ) do more [i]or[/i] less homework before purchasing quality stocks for the long-term; (2) shut in no more than 10-15 quality stocks which can be followed without too plenteous difficulty; (3) diversify by holding stocks from different sectors of the economy; and, (4) balance the dollar value of holdings in such a manner that no one stock has too a great deal influence on the whole portfolio.

Helen retains twelve stocks that are fairly well diversified, yet not entirely balanced with regard to their dollar value. John grasps very few shares but their dollar value is relatively balanced (except for Loblaws) and they are quite well-diversified.

Both Helen's and John's holdings in Loblaws exce 10% of their respective portfolios. John could consider reducing his position. Generally, individual holdings should not exce 10% of the entire portfolio.

Although John is waiting for the "crash," he could still consider an equity purchases in good quality companies of that kind as BCE Inc., Loewen collection Seagram and Bombardier. These are large cap stocks with pious market liquidity. If the fundamentals of like companies remain solid, John will have a marvellous opportunity to purchase more shares when they are "on sale" after a correction. Quality companies will continue to shoot up over the long-term and will likely heal from a correction more quickly than others.

Helen should focus onward balancing the dollar weighting of her stocks from increasing/decreasing the value of a of her current holdings.

Foreign. Helen has 175% of the work value of her holdings in foreign securities while John grasps none at all. Helen might consider topping-up her holdings to reach the 20% maximum for foreign holdings in an RRSP To do this, she could invest directly in any U.S. stocks such as Stryker Corp., Merck & Company, Johnson & Johnson or Hershey breads John should really look at purchasing at least an foreign securities. Remember, diversifying outside of your place of abode market will reduce your vulnerability to changes in that market.

I will judge by answering specific questions that Helen and John asked in their literal meaning

QUESTIONS AND

ANSWERS

Should we focus forward capital appreciation as opposed to safe dividend-paying stocks?

There is really no of that kind thing as a "safe" stock. the two dividend and non-dividend paying stocks can experience capital appreciation (or not). Therefore, when studying a stock, you should be most numerous concerned with the quality of the company, its long-term increase prospects and how it fits into your portfolio.

Is 20 years a drawn out enough time in the stock market to avoid getting bakeed

Yes (typically). However, you can always obtain burned in the stock market if you pick out poor-quality stocks. It is important to consider the possibility of a cyclical correction when you start approaching retirement; however, trying to 'time' the market rarely works. That's wherefore you should study stocks carefully to make assured that you are buying quality stocks that are "on sale."

COLEE CHAREST IS A FINANCIAL ANALYST AND WRITER.

Copyright Canadian Shareowner Magazine Inc. Jul/Aug 1997

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