Couple Should Aim for 10 Stocks in ...

Couple Should Aim for 10 Stocks in Several Different Sectors

Considering your portfolios have relatively similar asset mixes, and you are the same age, I have assumed you have similar attitudes towards risk. Consequently my suggestions are generally applicable to the one and the other your portfolios.

Your primary objectives to pay down your mortgage and build your Self-Directed RSP are quite vigorous

OVERVIEW

Mortgage

If you have not besides done so, I would recommend the next time you restore your mortgage you consider weekly payments. This will allow you to pay back the mortgage more quickly and therefore have more supplys available for investing.

Emergency Cash

You have stated that you maintain $10000 in a savings account for emergencies; however, it assumes unlikely that you would perpetually need the full amount in succession a moment's notice. I would powerfully suggest you consider keeping approximately $2000 in your bank account for immediate use and investing the other $8000 in a no-load wealth market or TBill mutual store You should be able to betray units as needed and obtain the circulating medium within two or three days.

YOUR PORTFOLIOS

By any standard, and particularly with think highly of to RSPs, your portfolios' asset mixes are to a high degree aggressive. However, this is not inadvisable given your ages.

Cash (Including Cash Equivalents)

Your ages, in every one's mouth employment status and cash lay by outside your RSPs make me think you do not ne to maintain a cash position in your portfolios. Therefore, I agree that you should invest as plenteous of your cash as possible.

Fixed Income

It is not immediately necessary to build your fixed income position-particularly since the economy is still in advantageous shape. However, I would remind of that the relevance of fixed income securities be considered for your core holdings one time you enter your 40s.

Equity

Foreign

I firmly suggest that all investors maximize their foreign investments to 20% of their total RSP (as allowed in a less degree than current RSP legislation). Geographic diversification helps hedge a portfolio from the local market risk. In addition, historically, foreign investments have provided better overall turn backs compared to the Canadian market.

The principally popular way to invest internationally is end mutual funds. However, alternatives include buying SPDR units (depository receipts based onward the S&P 500 index) which are available upon the NYSE or through the CSA's Shareowner DRP program (see pages 510 of this issue). Other alternatives to mutual foundations include WEBS and Country Baskets (see pages 11-12 of the July/ August 1996 issue).

Currently you each concede a foreign mutual fund-both of which are heavily weighted to the North American market. Ideally, you should consider holding mutual stores Country Baskets or WEBs with more sprouting outside North America, since the Canadian market firmly correlates to that of the U However, considering the size of your portfolios, I would focus foreign holdings to individual mutual fund each. So, if the costliness of switching from your instant funds is too high, don't bother for now.

Canadian

Because your portfolios are still relatively small, it is difficult for you to favorably diversify your holdings at this time. To achieve optimal diversification, you would ne about 10 stocks from different sectors of the economy.

James appears to have opt for the purchase of large capitalization stocks along with a mutual foundation focused on smaller, fast-growing Canadian companies. In doing this, he is obtaining the privationed Canadian market diversification. In contrast, Barbara has purchased the two smaller and larger capitalization stocks and has used TIPS (TSE 35 Index Participation Units) to increase diversification. It is notable that TIPS and HIPs (TSE 100 Index Participation Units) are an of the best quality alternative to buying mutual capitals Both securities can be bought either in consequence of the TSE or the CSA's Shareowner DRP program.

For now, I would encourage you to restrain your Canadian mutual fund and TIPs-at least until you have about 10 fairly balanced stock positions. I would also put in mind of you be careful with stocks that are tough cyclicals such as Viceroy abodes and Alcan. Cyclicals require a doom of attention because you generally ne to "time" purchases and sales in order to achieve any kind of reasonable reply over the long term (See "Cyclical Stocks: Not for the Faint-Hearted," Stock Selection Manual, page 56)

STOCKS TO close attention

Both Atco and Westcoast animal spirits are good stocks to consider, if it were not that I would also suggest you consider at TransCanada Pipeline, TransAlta, Bombardier and Teleglobe. Regardless of which stocks you might consider, I earnestly urge you take the time to evaluate them using the Stock Selection Guide before making a purchase. Remember, if you're a longterm investor an extra not many days will very likely not make any difference to your portfolio's long-term performance. proper Luck!

Copyright Canadian Shareowner Magazine Inc. Sep/Oct 1996

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