My Portfolio as of today – March 2017

globe

“The portfolio” as told to the Me and My Money column in the Globe and Mail last spring.

Berkshire Hathaway Inc.,  Fairfax Financial Holdings Ltd., Birchcliff Energy Ltd., Pengrowth Energy Corp., Canadian banks, Canadian National Railway Co., BCE Inc. and Leon’s Furniture Ltd.; Horizons S&P/TSX 60 and Horizons S&P 500 exchange-traded funds (ETFs).

 

I began investing with a focus on dividend stocks, but as the dividends grew, so did the taxes.  I didn’t realize that the tax rate on dividends was actually higher than on capital gains.  This all depends on your income level.  If you are a retiree, chances are it is reversed.

Given my income from teaching and dividends, the tax hit was cutting into the compounding of portfolio returns, and I stopped buying dividend stocks (while keeping the ones I already owned). Now, I seek capital gains through three strategies.

The first is investing in the shares of publicly traded companies managed by individuals with distinguished investment track records. I own shares in Warren Buffett’s Berkshire Hathaway, and Prem Watsa’s Fairfax Financial Holdings.

A second is to own low-cost, broad-based ETFs that automatically reinvest distributions tax-free. Two such ETFs are the Horizons S&P/TSX 60 Index ETF and Horizons S&P 500 Index ETF.

A third approach is to occasionally buy beaten-down stocks that “financial gurus,” such as Franco-Nevada Corp. co-founder Seymour Schulich, are buying. I purchased shares of Birchcliff Energy last summer, and more recently, shares in Pengrowth Energy.

The positions based on these three strategies pay no (or small) dividends. (Any stocks with high yields in his portfolio are carry-overs from the period before I switched to capital-growth approaches.) Moreover, they are long-term holds, and taxes will be paid only on capital gains when a sale occurs. The result is a better compounding of returns.

My portfolio is higher-risk because it is fairly concentrated but I’m okay with this because the backbone of my retirement plan is my teacher’s pension.

 

For the majority of people who don’t have a defined-benefit pension, you can’t go wrong by investing in simple, low-cost index funds.

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