Dan: ETFs make the most sense. Beating the market is very difficult but now you can match the market which ETFs can do. You should use 2 to 3 ETF funds to cover the Canadian and the International markets. Start by figuring out what percentage you want to put into stocks. With the stock money put one third into Canadian Stocks, one third into US stocks and one third into International stocks. This is so you have 3 buckets of stocks.
When adding to your stock investments, rebalance to this one third mix. Most people cannot beat this mix. To reduce investing challenges you should overwhelming chose ETFs. Go for low fee and simple ETFs. You might feel that you need more holdings than 3 ETFs, but you do not.
Tom: He talked about the 7 Ps of active investing for Mutual Funds. He talked about building a portfolio that is different than the index. There is pressure on fund managers to keep up with the index. Funds can get too big and therefore have a hard time investing. Because of fees, active investment management cost more. You should take a long term perspective.
- People make money. That is people with talent. They need the experience of having been through market cycles.
- Look at the Parent company. The organization where people operate.
- Look at the fund's philosophy of how they will manage money. If they talk too much of being underweight or overweight, then they are watching the index too much.
- Look at the process. How many people are involved?
- The price is the fees charged.
- Look at performance and how well they did overtime. A long term record counts.
- Look at passion. You want to have geeks who love investing.
Set up a simple dividend portfolio. You want stocks with high yields of 3 to 4%. You want stocks with good dividend growth over the past 5 years. You want companies that can afford their dividends. Get companies with low debt ratios. Also buy stocks at good prices, at moderate to low prices. It is the 10 anniversary of The Dividend Achiever's list.
Most people who have done well over the long term are dividend investors.
Tom: But there is a bubble in dividend stocks. They have a good return compared to bonds. Dividend stocks will be hurt in the next bear market and you need to diversity. Do not only have banks or 10% yields. There is risk in banks. Their customers are overly loaded with debt. In Ireland banks and insurance companies went bankrupt in 2008. Their value went to zero.
Dan: ETFs are changing to more active management rather than being tracking index ETFs. These ETF have strategies different from an Index. The active strategies use screening to get stocks.
Tom: ETFs are getting away from just following an index. They more specialized and this can be a problem. ETFs have lost their way.
Dan: He disagrees. It is nice to be able to buy a country specific ETF. The growth of ETFs disrupts the market and makes them more efficient. If everyone is indexing and the market becomes more inefficient, them someone will come in and take advantage of this. Dan: He disagrees. It is nice to be able to buy a country specific ETF. The growth of ETFs disrupts the market and makes them more efficient. If everyone is indexing and the market becomes more inefficient, them someone will come in and take advantage of this.
Tom: Expect 5 to 7% investment return in the future. Historically investors got 8% on dividend stocks.
Norm: He agrees with the 5 to 7% investment return in the future. He doesn't really know what will happen, but lots can happen. You can do ok, but do not expect too much.
On my other blog I wrote today about Linamar Corporation (TSX-LNR, OTC-LIMAF)... learn more. Tomorrow, I will write about Enbridge Income Fund Holdings Inc. (TSX-ENF, OTC-EBGUF)... learn more on Wednesday, October 12, 2016 around 5 pm.
This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.
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