Ok so after my rant about diversification I’m sure some of you scrolled down to see what my holdings are (and to judge if I’m diversified or not). I got a few emails from people who noticed that I have very little fixed income and no technology companies. Well you asked for it so here it is...my thoughts....I don’t hold any technology companies for the simple reason that I think most of them are over-valued and don’t have a sustainable competitive advantage. A lot of tech companies seem to be trading on the next-big-thing, take the Motorola Razor for example, it was all the rage and now apparently it’s a piece of crap, it’s the reverse for Apple, they went from piece of crap to cool and I’m sure that if something better and “cooler” came out their ipod or iphone would go from cool to crap again---don’t think so? find someone with a teenager and ask them. I on the other hand think banks are cool, insurance is trendy, and nothing is “awesomer” on a nice winter day than oil and pipelines, not to mention a building that houses seniors (CSH.UN)….Radical Dude!
As for fixed income…well that ones easy…
1. The rates sucks
2. I’m young (I can ride the stock market ups and down)
3. Longer term I think high quality dividend paying blue chips will beat the yield of any 10 year bonds (not including junk bonds).
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16 comments:
MCM,
Ah youth and avoiding fixed income. I remember those days, but I've recently been adding some bonds to my RRSP's to help stablize my holdings. I like having something that won't dip when the market takes a dive.
Having a kid I found was the tripping point to wanting to stablize things a bit.
CD
I agree with you that bonds will stabilize a portfolio however, I just don’t see the incentive to hold bonds in the current interest rate environment (regardless of the target fixed income percentage of a portfolio). I’m not an expert in bonds and fixed income investments but why not simply put your cash in a money market or Presidents Choice Savings Account? As they pay about the same interest rate as government bonds but without the 5 or 10 year commitment. Then if/when bond yields start to climb you can move some of your cash over to bonds.
Cannot give you a source but a rule of thumb I've seen is that the fixed income proportion of one's portfolio should approximate one's age. As I've gotten older that thought has made more and more sense to me and I'm gradually increasing the fixed part (currently at about 30%). Like you, the banks look to me much like fixed income and that is kind of a semi-substitute right now.
The other factor is that when one approaches a target total portfolio, such as the million in your case, capital preservation comes to the fore and fixed income is a good, though not perfect if inflation begins to rear its head, way to do that.
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