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Discussion Starter #1
Hello all,

I am a total newbie when it comes to investing. I currently have 200K sitting in a savings account generating 1.8% interest. I do not need this money for the foreseeable future. I am simply wondering if the following would be a better choice; take the 200K in cash and invest it accordingly:

-50K in BNS
-50K in CNR
-50K in BCE
-50K in FTS

My plan is to buy and hold the above. Can anyone tell me why this wouldn't be a good idea?
 

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Well, it's not very diversified, and it's 100% equity.

I think that something like VBAL or VGRO (or XBAL/XGRO if you prefer) would be better, depending on your age/time horizon.
 

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Well, it's not very diversified, and it's 100% equity.

Yeah, for sure.

The OP has told us very little about their goals, etc.

And now they want to switch from 100% cash to 100% equities?

Realize these equities could offer a total return of quite a bit below zero over many years?

ltr
 

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Discussion Starter #4
Thanks for the responses. I'm not interested in Index Funds or ETF's.

I am simply wondering whether the stocks I chose will be better than holding that cash in a savings account. I know nobody can predict the future, but any additional insight, remarks will be appreciated.
 

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If you have a well-padded emergency fund (at least 6 months of expenses, preferably one year), then you can invest those savings into stocks, provided you have a long time horizon (20+ years). The stocks you have chosen seem good, but it also depends on what other stocks you have in your portfolio. Given those are sizable positions, you could be more diversified by buying 10 stocks, each for 20k each. So you would add another bank to BNS, another utility to FTS, etc. You could also consider buying a few USA or international stocks.

As they say, there is only one free lunch in investing and that is diversification.
 

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Why aren't you interested in index funds or ETF's?

You could hedge your bets by doing some percentage of your money in stocks and the rest in cash or bonds. It doesn't have to be all or nothing.
 

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-50K in BNS
-50K in CNR
-50K in BCE
-50K in FTS

My plan is to buy and hold the above. Can anyone tell me why this wouldn't be a good idea?
Looks fine however ... if your 200k drops to 150k for a while are you going to sell it or wait it out?
 

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Discussion Starter #8
Thanks guys. Yes, I will not need this money for quite some time. I do have other savings that is currently in GIC's; and that cash will remain (GIC) cash.

I know it seems reckless, but I''m not really into diversifying. I feel that if I can choose four wonderful companies that will have a consistent trajectory of growth -- despite temporary market fluctuations -- then why look any further?
 

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I know it seems reckless, but I''m not really into diversifying. I feel that if I can choose four wonderful companies that will have a consistent trajectory of growth -- despite temporary market fluctuations -- then why look any further?
Most retail investors and even most professional stock pickers cannot beat the market in the long term. As such, the odds are stacked against you.
 

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I know it seems reckless, but I''m not really into diversifying. I feel that if I can choose four wonderful companies that will have a consistent trajectory of growth -- despite temporary market fluctuations -- then why look any further?
Personally, I think the logic above has been turned inside out.
The question is not "why look further" than your four stock choices.
It is "why look further" than a single, broad-market ETF?

Not "being into" diversification isn't a satisfactory explanation.
 

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-50K in BNS
-50K in CNR
-50K in BCE
-50K in FTS
I hold a similar mix of individual Canadian stocks so I'm not opposed to these stocks. They aren't bad stock picks.

I am simply wondering whether the stocks I chose will be better than holding that cash in a savings account.
Yes I think holding those will give a higher return than holding cash, in the very long term (maybe 10 to 20 year horizon). These stocks are better than holding cash.

But I also think it would be an even better idea to hold XIC (Canada) and XAW (world) instead. This would more reliably beat the cash return. I don't think it's a great idea for a total newbie to hold individual stocks. Specific reasons:

1. holding individual stocks still requires some strategy and long term maintenance... it's not just a simple matter of buying and then blindly holding onto stocks for many years. I do hold some individual stocks (including CNR, BCE, FTS) but I also have a maintenance routine and long term strategy with them.

2. as a total newbie, it's hard to know how your brain will handle the stresses and surprises that hit these stocks. What if some horrendous thing happens at BNS, for example, a total collapse of their Latin American business? You might see daily stories in the news, and on TV, about how BNS is toast ... the stock could start crashing. How would you respond? Without a clear plan of action, this situation will be extremely difficult to navigate. Would you be committed to holding it "no matter what", or is there a point at which you would dump BNS?

3. in a few years, these stocks may no longer be strong competitors in their fields. They may even turn into the "duds". This has happened time and again through history. At one point, Bombardier (not CN Rail) was the top industrial stock in Canada. If you're going to pick individual stocks, you need a solid strategy for how to handle this possibility. A great stock today may not be a great stock 5 or 10 years from now.


The pitch for indexing (like holding XIC) is that you get all of this for free, automatically. The index does have a strategy (which is time proven). The index also automatically navigates the changing nature of the competitive landscape. For example, as Bombardier became less relevant over time, its weight in the index shrank and new giants took over.

Using XIC also helps reduce the emotional challenge of dealing with stressful decisions about what to do with particular individual stocks when really bad things happen.
 

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Personally, I think the logic above has been turned inside out.
The question is not "why look further" than your four stock choices.
It is "why look further" than a single, broad-market ETF?
One reason might be that a broad market ETF gives you the good with the bad. You get over diversified and at best only get an average total return and a low dividend yield.

He has chosen 4 good stocks. I would double the number. 2 banks (I have all 6!), 2 utilities (FTS & EMA?), and 1 each of BCE (telecom), TRP(pipeline), POW(insurance, etc), Russel (materials/Infrastructure). All good dividend payers. Large cap except for Russel.

It's a personal choice. But given he has fixed income already, stocks should be good if horizon is 5-10yrs or more.
 

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It isn't a bad idea. A diversified portfolio w some US stocks would be better though. Here is your portfolio (P1) vs a portfolio 2 of 50/50 the S&P 500 ETF SPY and S&P TSX 60 ETF XIU. Over 7 yrs the returns are 1.61%/yr better

20293


20294
 

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It isn't a bad idea. A diversified portfolio w some US stocks would be better though. Here is your portfolio (P1) vs a portfolio 2 of 50/50 the S&P 500 ETF SPY and S&P TSX 60 ETF XIU. Over 7 yrs the returns are 1.61%/yr better
Interesting, but a bit of apples and oranges because one portfolio has US content and the other not.
In one place you mentioned XIC and in another XIU.???
And 7 years is just a snapshot. There have been times when the US content wouldn't have helped at all.
 

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Interesting, but a bit of apples and oranges because one portfolio has US content and the other not.
In one place you mentioned XIC and in another XIU.???
And 7 years is just a snapshot. There have been times when the US content wouldn't have helped at all.
That was the pt. Diversifying gives you better returns unless he didn't want US stocks for tax reasons. The US has outperformed the CDN index generally over the longer periods too. For some reason Fortis's financials are the limitation

XIC and XIU are similar CDN index ETFs. XIC is 300 stocks, XIU 60 . XIU is older though so used it.
 

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There is nothing wrong with 'guaranteed' index returns less MER, which is what broad based index ETFs give you. How can one go wrong with guaranteed 20-30 year returns for the baseline 25/25/25/25 asset allocation shown in Norm's Asset Mixer? Change it up with whatever ratios one wants.
 

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Hello all,

I am a total newbie when it comes to investing. I currently have 200K sitting in a savings account generating 1.8% interest. I do not need this money for the foreseeable future. I am simply wondering if the following would be a better choice; take the 200K in cash and invest it accordingly:

-50K in BNS
-50K in CNR
-50K in BCE
-50K in FTS

My plan is to buy and hold the above. Can anyone tell me why this wouldn't be a good idea?
I think everybody is talking about diversification for a simple reason. Yes, it's less risk, but I'm also going to ask you why those 4 specific stocks even though they are wonderful stocks? There are also other wonderful stocks out there.

Why BNS.TO and why not TD.TO?
Why CNR.TO and why not CP.TO?
Why BCE.TO and why not T.TO?
Why FTS.TO and why not AQN.TO?

If you had bought your selection 10 years ago, you'd be sitting on 600K today.
If you had bought my alternative choices, you'd be sitting on 1M today.
And since 10 years ago you would not know which was the better choice, if you had diversified and bought all 8 stocks, you'd be sitting on 800K today.
 
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Wouldn't it be great if hindsight worked for us when buying stocks :) No doubt, some diversification would be a good idea. But not so sure I would buy two each of just 4 sectors.
 

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Discussion Starter #19
I am opposed to over-diversification -- when you're holding a bunch of companies in an index that you've never heard of nor understand. I just don't want to do that. However, James made a good point when he stated the following:

"The index does have a strategy (which is time proven). The index also automatically navigates the changing nature of the competitive landscape. For example, as Bombardier became less relevant over time, its weight in the index shrank and new giants took over. "

I guess I have some things to think through before I go through with my original idea.
 

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I also think diversification is over rated...a few concentrated bets on wide moat, large cap dividend increasing businesses is a great strategy for younger people.
 
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