Wednesday, March 9, 2016

The temptation of Index Investing

As you may have noticed on my Portfolio page, I hold an Index Fund. It's a RBC US Index Fund with fees of 0,70%. If you browse a little bit on the Web you can find US Index Fund much cheaper. For example, the Vanguard US Total Market Index ETF (VUN) has fee as low as 0,15%. 

As experienced investor, we all know that small percentage have huge effets over a long period of time. Right now, I stick with my RBC Index Fund simply because it enables me to purchase shares on a regular basis at no cost. That's where lies the advantage. For now.

You all know by now, I don't want to hold too many stocks. The reason : I don't have time nor the passion to closely follow more than 15-18 stocks. (even that number is outrageous. I have to work for a living, work out, eat, etc.) I now hold 22 stocks. I know, that's insane, Check it out here. I doubt that most of you can follow more than 20 stocks, unless you are still living in the basement of your parents. If it' the case, you might have other worries than following stocks...  (just joking).

So how did I end up with 22 stocks? Basically greed and the fact that I'm a man and therefore I think I'm the king of stocks. I most certainly aren't. I have many stock stories that went sour and could confirm this. ABX get out of my body!!!

I believe the less you do while managing your portfolio, the better it will fare over time. We are always tempted to diversify, buy this new attracting stock or add some of this and some of that to average down our cost. By the end of the month and the years these commissions pile up and eat up our performance. (yes it does)

Where am I getting at? I guess I'm getting at Index Investing.

I've been thinking about Index Investing for a while. But never got my head around it. I think I might consider this option starting this year. Will I sell my actual stocks? I might get rid of some of them (POT, COP, ABX...) but I will keep the others. I sure won't touch to my main holdings, namely JNJ, BNS, RY, POW, etc.

I 'm thinking more of developing an hybrid approach. I would  keep roughly 16-18 stocks and would add 3 or 4 index funds. It's in these funds that I would inject new money. Once a month or every quarter. Then I would rebalance the whole thing just once a year to match my initial strategy.

This initial Index strategy could resemble this :

  • 35% Vanguard Canada All Cap Index ETF (VCN) | MER = 0,11%
  • 35% Vanguard US Total Market Index ETF (VUN) | MER =0,16%
  • 20% Vanguard FTSE Developed All Cap ex North America (VIU) | MER = 0,20%
  • 10% Vanguard FTSE Emerging Market All Cap Index (VEE) | MER = 0,29%

Just that simple. Actually, back in the days I should probably have opted for this sort of strategy right away. Any Millenials listening out there?

All in all, the management fees would represent an average total of 0,19%. Not bad to hold pretty much the entire world of stocks!

This is indeed a Couch potato strategy. You won't beat the Market for sure. But you will do just as well. And that's much better than a whole lot of active managers.

So I'm thinking more and more about making this move. Will see how it goes. Stay tune.

What do you think about this move? Should I do this? And would you consider doing some Index Investing?

Saturday, March 5, 2016

Why I sold some $BNS and some $SU

Hey Financial Freaks,

Well, yeah, my first two moves of March consisted of selling small portions of two of my main holdings : Suncor (SU) and Bank of Nova Scotia (BNS).

This is a rare move on my part since I am (or pretend to be) a buy and hold investor. I still think the best way to make money is too hardly make any moves at all -- apart from b
uying obviously.

This is why I feel I have to justify these two moves.

First, Suncor (SU).

This is a stock I have been holding for more than 5 years, never minding all the ups and downs. Suncor is the best old integrated company in Canada. But I, like most oil investors, remain cautious about the present situation. This sector is clearly facing headwinds. It remains too see if the company can maintain its current dividend policy. The stock is now yielding at 3,44%. This is pretty high considering other peer companies have had to slash their dividends. Another question mark : will the acquisition of Canadian Oil Sands put the dividend in jeopardy? Maybe.

Last month, I bought 30 shares of SU at around 27$ I was then trying to average-down my cost-price. It worked. Recently, the share price went back up (around 34$). This stock then crossed the 5% weight in my portfolio next to other big names like Royal Bank (RY), Johnson and Johnson (JNJ) and Power Corporation (POW). Given the current state of oil prices, I thought it would be wiser, especially in my RRSP, to diminish a little bit my exposition to oil.

This is why I decided to sell 25 shares of SU at 33,85$. This adds 836$ for other buys. It also means I have to withdraw (25 X 1.16$) 29$ in dividends from my Passive Income.

I still hold 225 shares of Suncor. This stock accounts to more than 4,67% of my portfolio.

Second, Bank of Nova Scotia (BNS).

This is purely a move meant as rebalancing my portfolio as well as my exposition to the financial sector in general.

I sold 20 shares of BNS at 59$, so at approximatively my cost-average price. This provides me with 1 169$ for other buys. It also means I have to withdraw (20 X 2.88$) 57,60$ in dividends from my Passive Income.

Like I said, I still very much like this stock. It remains part of my big five. I just felt I held too many shares and the weight vs my portfolio was too great at 6%. How did I get to 6%? I kept buying and buying as the stock was dropping to average down my cost. I ended up owning 170 shares worth more than 10K$!

I now hold 150 shares of Bank of Nova Scotia and I intend to keep them for a long time. This stock accounts to more than 5,49% of my portfolio.

What do you think about my move? Was I too cautious ? Should I have been more patient even though the stocks represented big chunks of my portfolio? Hit me with your best shots if you think I was a fool. I can take it ! ;-)