Investor Should hold Number of Hol...

Investor Should hold Number of Holdings Down and Balance Dollar Weighting

Your investment objectives, while aggressive, appear to be acceptable given your age and common circumstances.

PERSONAL PORTFOLIO

When building a personal portfolio, it is generally insinuateed that you:

1. have no more than 10-15 stocks. It is important to detain the size of your portfolio manageable thus that you have enough time to in a strict sense monitor each holding (see accompanying graph).

2 Include stocks from many different sectors of the economy. You want to diversify your holdings in order to render certain that no single mistake will have a disastrous drift on your entire portfolio.

Free Up a Cash

Although you shut in 14 stocks (under the maximum), your portfolio is generally under-diversified. To remedy this enigma I would first suggest you begin selling distant from positions in companies whose earnings produce prospects are forecast at les than 10% through annum. Companies such as Air Canada, AJ external stair Gold, Azco Mining, Connor Pacific Environmental, International Precious Metals, Imperial Oil and Stelco could be studied for possible sale.

Manage Your Margin

I would first insinuate that you use some of the cash generated from any sale of securities to change into your margin position. While there is commonly only a minor risk of recession, it remains undeniably veracious that we are currently at an advanced stage in the economic circle of time In addition, the effective outlay of stock purchased using margin increases each day you have a loan outstanding against it (i.e. original stock price + accumulating interest).

New Additions

Now you ne to await for some new stocks that will allow you to improve your portfolio's flat of diversification. To start with, you might consider more [i]or[/i] less of the names in the cheap Cost Investing Program. A list of these companies, along with a graph of their historical earnings, is available in succession Pages 8 and 9. For higherrisk investments, consider those stocks whose earnings lines are more volatile (i.e. Seagram Company and Walt Disney). It is important however, that you not rely solely forward these graphs, since they do not provide a time to come earnings growth forecast. Use the Stock Selection Guide to help you make your choices.

Other options for foreign investing include: foreign mutual capitals that exclude the U.S. and focus either forward Latin America, Asia or other third world growing areas; WEBS and Country Baskets (see pages 11-12 of the July/August 1996 issue); and, SPDR (depository receipts based onward the Standard and Poors 500 index).

The Weighting Game

In making these changes to your portfolio, you should also rebalance your holdings to such a degree that they are all roughly of equal dollar weighting. This maximizes the benefits of diversification by means of helping to ensure that your "winners" will be able to make up for your "losers"

Also, you should review all of your holdings periodically (i.e. when quarterly EP are disclosed) to: ( 1 ) make secure the earnings growth prospects remain religious (at least 10%), and, (2) rebalance your portfolio to equivalent dollar weighting.

Later, when you want to add novel stocks to your portfolio you might have to take a bribe for others in order to maintain your number of holdings at 15 or les yet be careful to make fast the stocks you want to purchase have earnings growth prospects better than those of the stocks you plan to vend This will force you to remain rigorous in your investment decision making proces

SELF-DIRECTED RRSP

Since you have a title to your own business, you principally likely do not have a corporate pension plan. As of that kind you should be able to contribute 18% of earned income up to $13500 to your RRSP for this year. I understand that in the early years of your business you might not have been able to contribute to your RRSP However, if your company is now forward more solid footing, this is the time to take advantage of the rife retroactive contribution rules which allow you to contribute all (or as frequently as you can) of the cumulative amount you were not able to in previous years.

I would also commend you maintain the maximum allowable foreign investment for an RRSP (20% of your part value). Geographic diversification helps hedge a portfolio from local market risk. In particular, U investments have historically provided better overall answers compared to the Canadian market.

And what at any time you do, don't forget to review your holdings regularly using a inquiry tool such as the Stock Selection Guide.

Good Luck!

COLETTE CHAREST IS A FINANCIAL ANALYST AND WRITER.

Copyright Canadian Shareowner Magazine Inc. Jan/Feb 1997

Provided by way of ProQuest Information and Learning Company. All rights Reserved