Ask any financial adviser and they’ll say a big part of their job is “talking people off the ledge.” Soothing investor nerves is the psychological contribution they make for all those fees. But why do we freak-out so often? Isn’t it because we’re not always organized in our financial thoughts and at peace with our plan? So let’s get organized.
Money can only be placed into four groups: cash, GICs, bonds, and stocks. The most confusing of these is stocks.
Canadian stocks
Canadian stocks come in limited flavours and though we have a TSX 300, you only need to know about 25. The primary sectors are: financials, utilities, resources, and telecommunications.
Financials means banks and insurance companies. Here are the ones to watch:
- Toronto Dominion (TD)
- Bank of Montreal (BMO)
- Royal (RY)
- Manulife (MFC)
- Sun Life (SL)
Utilities primarily means pipelines and power companies.
- Enbridge (ENB)
- TC Energy (TRP)
- Pembina (PPL)
- Fortis (FTS)
- Capital Power (CPX)
Resources in Canada means oil companies and mining.
- Suncor (SU)
- Canadian Natural Resources (CNQ)
- Cenovus Energy (CVE)
- Crescent Point (CPG)
- Teck Resources (TCK.B)
And our big telecoms are:
- Bell (BCE)
- Rogers (RCI.B)
- Telus (T)
Good companies in other industries are:
- Canadian National Railway (CNR)
- Canadian Pacific Railway (CP)
- Magna (MG)
- Empire (Sobeys) (EMP.A)
- Loblaws (L)
- Canadian Tire (CTC.A)
- Nutrien (NTR)
Honourable mention goes to Imperial Oil, Arc Energy, Encana, and Emera. This list gives you a good cross-section of the Canadian economy. So if Canada does well, you do well. And there’s no reason to believe that Canada won’t do well.
If I had a million dollars
The next question is: how should I invest my dough? Here’s what I’d do with a million dollars.
- Cash – 10%
- GICs & Bonds – 30%
- TSX 25 – 60%
You always need cash in the event something goes on sale (i.e., a market correction).
Bonds and GICs give you stability. GICs need to be CDIC insured and laddered over 2-5 years. Bonds should also be laddered and only honoured by quality companies. Note: bonds must pay a premium to compensate for their risk over a GIC (I’d say minimum 1-2%).
When it comes to stocks, own the TSX 25. If you’re just starting out, buy them in order, one industry at a time. For example, if you have only $10K, buy the TD Bank (or your bank). With your next $10K, buy Enbridge, and so on until you own them all.
With only a million dollars there’s no need to go international and involve currency risk. We have plenty of good companies here at home. But if you have an international flair, look to the US and Asia.
Young people
Jordan has a good paying job but nothing for savings. He wants to start investing but doesn’t know where to begin. Here’s what I’d suggest.
The first $10K should go into a 5-year, CDIC insured GIC. The next $10K should go into a high-quality corporate bond. The next $10K into the TD Bank, and the next into Enbridge. Along the way, he’ll accumulate some cash. After stage one, his portfolio should look something like this:
- $ 5K Cash
- $10K GICs
- $10K Bonds
- $10K TD Bank
- $10K Enbridge
Summary
Being organized relieves the stress of investing. You needn’t experience emotional pain for financial gain. Substitute companies into this list as desired but remember that owning and watching 300 stocks is unmanageable. It’s best to keep things simple. (Besides, getting rich shouldn’t be that complicated.)