Tuesday, November 4, 2008

What Sort Of Portfolio Do You Want

Before building a portfolio, you have to decide what sort you and want you want it to do.

I have one that has income that increases above the rate of inflation (between 3 and 4%) and allows me to have some fun. I live off my portfolio, so I want my income to increase, but I do not need it to increase greater than inflation, which, historically runs at 3%. I have it increase slightly more than inflation as a safety measure. I also get to have some interesting investments in tech and dividend paying small and medium size stocks.

My portfolio has a sold backbone of large, increasing dividend paying stocks. I have a Canadian Trading account, a US Trading account, a RRSP trading account and a Locked-In RRSP Trading Account. Because of tax considerations, my Canadian Trading account holds solid increasing dividend paying stocks. The dividends in this account have increasing, on average, at over 10% a year. In this account, you will find such stocks that appear on the Dividend Achievers at www.dividendachievers.com/ and the Dividend Aristocrats lists.

The main exception that is that I keep no resource stocks in this account. I do not feel that any resource stock is a permanent hold. Some of the stocks in my Canadian Trading account, I have had since the 1970’s. I do buy and sell stocks in this account, as this cannot be avoided, but I keep this activity down as much as possible. The last thing to mention is that, although I do not have resource stocks per say in my Canadian Trading account, I do have pipelines. I have to admit that this could cause me future problems as, some day, we will get off oil and gas and generate energy in more environmentally friendly ways. However, when this will happen, who knows.

My US account is in US currency and I do not have much here, as I do not do much in international investing. I recently moved some cash from this account as our Canadian dollar hit a low and it was a good time to take cash from this account.

Both my RRSP and my Locked-In RRSP accounts have some good solid increasing dividend paying stocks. Also, these accounts are where I place my resource stocks, tech stocks and small and medium size dividend paying stocks.

I have some income trust stocks in all my accounts. There is a trade off in high yield and low increasing dividends. If you have income trusts, or any other high yield stocks, you must decide what sort of trade off you want between yield and increasing dividends.

So, anyone with an investment portfolio should decide what sort they want and what they want it to do, and then you must invest accordingly. Do you want high increasing dividend income and are willing to settle for low yield? The above stock Dividend Achievers stocks might be the way to go. Do you want a higher income and are willing to settle for lower income increases? Then a mix of Income Trust stocks with increasing dividend paying stocks might be for you. Are you willing to have lower income increases and lower income so you can do some investing in non-dividend paying stocks? Then you may want your portfolio to have a backbone of solid dividend paying stocks, so you can indulge in other types of stocks.

You might want to combine any of the above with bonds for some greater income security. However, one thing is sure, if you invest money to earn money, you are taking a risk. That is why you get income on your money. Nothing in investing is an absolute sure thing. So, make sure you go with the level of risk you can handle.

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. See my website at www.spbrunner.com/stocks.html for a list of the stocks for which I have put up spreadsheets on my web site.

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