Hit that sell button. It’s not hard. It is likely a good portfolio move whether you are in the accumulation stage, nearing retirement or currently enjoying retirement. Of course, to rebalance your portfolio you have sell and you have to buy. Diversification is the only free lunch when it comes to investing. To remain sensibly diversified we usually have to rebalance to bring our portfolio weights back in line. That means we sell out performing assets and buy the laggards, or at least move those profits to safety. Buy low, sell high right? That is usually the event going on under the hood when we rebalance. Don’t be afraid to take profits, on the Sunday Reads.
Canadian stocks are hitting new all-time highs. Dividends are not included in the chart, below. Remember the dividends paid out will reduce the share price, equal to the value removed to create those dividends.
And it seems like every other week I’m writing about roaring U.S. stocks …
The best year-to-date for U.S. stocks, in decades.
Followed up by this two weeks ago …
U.S. stocks have the best week of the year.
Those who create individual stock portfolios are likely watching some of their stocks go on an incredible run, while others flounder. Seeking Alpha offers some wonderful portfolio trackers that you can customize. Here’s our top winners over the last year.
Rebalancing your stocks
I don’t believe in being too strick with stock weightings, I’ve mostly let my stocks run without rebalancing. But when a stock gets to a certain weight in the portfolio, I will look to trim. Royal Bank of Canada (RBC.TO) and Apple (AAPL) are each near 8% of my RRSP. Sell limit trades have been set for Apple at $240, $250, $260, $270 etc.
I will trim RBC if the stock keeps moving higher. A few shares will be sold next week and I will set a ladder of sell orders as well. Will Apple and RBC hit those targets over the next few months? I have no idea. But if they do, I’m happy to lock in some profits that will go to ultra short term bonds (cash like) or to underweight stocks. As I’m in semi-retirement, any profits held in the ultra short bonds are ready for spending. It’s easy and enjoyable to create retirement income from share sales.
Some will suggest that we should not let individual stocks get above a 5% portfolio weighting. It’s a personal choice and I will leave that up to you. In my wife’s spousal RRSP Berkshire Hathaway is over 35% of the portfolio. I have no plans to sell, quite the opposite, given that the stock is a conglomerate and more like ‘balanced’ fund compared to a typical individual stock. Plus, Berkshire holds about $325 billion in cash, it’s more like a balanced growth portfolio. There can be special situations, and you might have a very strong conviction for an individual stock. That said, understand the concentration risks.
More on – When should we rebalance our portfolio.
Who knew that Canada’s ‘safe’ telco sector would come under attack. I have been hurt by decent weights in Telus and Bell. I sold half of my Bell stock, and then I sold the rest.
Rebalancing your ETF Portfolio
If you hold a core ETF portfolio you might simply rebalance one a year. The need to rebalance could be that your stock to bond ratio (risk level) is out of whack. We’re then selling stocks and buying bonds. And given the meteoric rise of U.S. stocks over everything else, your portfolio geographic map is likely tilted towards one country. We’re selling U.S. and buying Canada or International.
You might choose to rebalance based on bands. For example, if the U.S. stock target is 40% and it has moved to 45%, find that sell button. You may choose 50% as a band target (or other) once again, that’s up to you, but have a plan and execute.
In the accumulation stage you have the opportunity to rebalance on the fly. New monies and portfolio income can be used to buy underperforming assets. Those ongoing investments might be able keep things in line, or at least reduce the portfolio drift.
Managing your capital gains and losses
Yes, for those with taxable accounts it’s time to ‘take advantage’ of your portfolio dogs – goodbye Bell Canada and Algonquin. Feel free to discuss your losers in the comment section of this post. Think of it as stock therapy 😉 It’s tax loss harvesting season.
We can sell our losers to create capital losses that can then be used to reduce or eliminate taxes on our capital gains. We’ll need to hit that sell button on both counts.
Capital gains tax in Canada explained.
Here’s a post I penned for Million Dollar Journey – How to keep track of your Adjusted Cost Base – ACB.
For subscribers (you can sign up at no cost), I will be sending out a post mid week on some year-end tax planning tips and reminders. You can enter your email address in the Subscribe button on the right hand side of this post, or Join Us Today on the home page.
If ever in doubt, but sure to contact a tax specialist.
Where’s the bottom for Bell?
Some analysts feel the sector is cheap and worth a look. Remember you can create a loss and buy back in, but you have to wait a month so that you don’t create a superficial loss.
It’s quite likely that the companies will continue to get lean, adjust and one day regain some market trust. We still have a position in Telus and Quebecor.
The history of bull markets
Just for fun, because we never know what will happen, here’s the history of stock market bull runs, from Year One …
And the past week was positive …
Canadian markets were up a tidy 1% for the week as well. Financial and value-heavy Vanguard VDY was up 1.76%.
Bitcoin continued its head-shaking run.
It was up another 6% this past week and has gained 44% over the last month. I’m happy to be along for the ride.
The coffee drain
And yes you can pour your money down the drain …
The dollars and pennies can certainly add up with respect to discretionary spending.
Oh look, I just found $888,000 in your coffee.
Many will suggest instead of Starbucks you buy a stock and drip. Pun intended.
Wealthsimple soars again
Wealthsimple is firing on all cylinders. A secondary share sale values the company at $5 billion. From that Globe & Mail article (sub required).
The financing comes amid a period of torrid expansion by Wealthsimple. Assets under administration (AUA) now exceed $58-billion, up $6-billion since Sept. 30 and nearly double the $31-billion level last Dec. 31. The Generation Z-focused financial services company, which positions itself as a challenger to Canadian banks, had 2.6-million investment and banking clients on Sept. 30, up 16 per cent from a year earlier.
Check out Justwealth, Canada’s top Robo Advisor
The average age of its clients has increased to the mid-30s, while the number of clients with $500,000 or more in assets with Wealthsimple has quadrupled in the past year.
At Wealthsimple you can trade Canadian ETFs and stocks ‘for free’. But be careful if you purchase U.S. Dollar assets due to the very considerable currency conversion costs. You could lose over 4% on a two-way (buy and sell) trade.
More Sunday Reads
Fritz at The Retirement Manifesto looks at a real problem for retirees. If you’re scared to spend you’re not alone. That article is loaded with retirement posts and studies and insights from Fritz. With awareness we can learn what is a safe withdrawal rate in retirement. And studies will show that retirees with more conservative portfolios will feel the freedom to spend more. We can certainly pensionize enough of our retirement income so that we have the conficence to spend from our growth-oriented investment portfolios.
On Cut The Crap Investing, a couple of key posts –
How to create retirement income from your portfolio.
Boost the spend rate in retirement.
On Seeking Alpha I looked at a U.S. ETF portfolio for creating greater income in retirement.
Dividend Hawk looks at his stock dividends, reports and updates. TC Energy (that we also hold) offered a favourable outlook at their investor day.
TC Energy Corporation’s (TRP) outlook highlights solid growth, low risk, repeatable performance at 2024 Investor Day; TRP forecasts FY 2025 comparable EBITDA in the range of C$10.7B-C$10.9B (US$7.63B-$7.78B), higher than its 2024 outlook, due to rising demand for natural gas and electrification. Announced four new growth projects, totaling approximately $1.5 billion of gross capital expenditures.
The pipeline stocks have been solid outperformers from October 0f 2023 when the rate cut environment started to take shape. And this was interesting, from last week’s post …
Ranking the Canadian banks
Hawk linked to a Sure Dividend post that ranked the big 5 Canadian Banks.
The banks will begin to report on December 2nd. On Cut The Crap Investing …
At Banker on Wheels there’s always a nice mix of posts and podcasts. Included this week is the miracle of of U.S. equities. A surprising chart, in case you needed more reminders on why market timing is not needed, and is impossible …
At Findependence Hub a very sensible post on long term index investing.
Yup …
- Diversify Across Sectors and Regions
- Start Early and Invest Consistently
- Maintain Consistency Through Market Fluctuations
- Stay the Course During Market Downturns
- Diversify Across Global Markets
- Avoid Over-Diversifying with Index Funds
- Automate and Regularly Invest
- Stick with a Single Index Fund
- Adopt a Set-It-and-Forget-It Approach
I missed this post from Stocktrades, looking at Apple and its valuation ‘issue’.
Here’s a look at Bob’s portfolio update at Tawcan.
And I’ve updated the EQ Bank post with a few GIC rate hikes.
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“We can sell our losers to create capital losses that can then be used to reduce or eliminate taxes on our capital gains”
You can really make this work for you when the unpredictable appears. Frankly I have too many unrealized capital gains and needed losses! So many would love to have that kind of problem.
During COVID there was an advantageous opportunity with Power Corp. When merged with delisted Power Financial they gave each PWF shareholder a number of POW shares. Nice … but what about those unrealized gains? Fortunately Revenue Canada deferred those gains until (POW) sold.
Dear board members – I’m not a trader, just want the beauty of those tax efficient dividends.
It gets complicated but the short of it is when POW dropped like a stone in early 2020 I sold at a loss almost equivalent to the gains. Waited 30 days and repurchased … a risky procedure but the price was more or less the same. Now it’s back up there and beyond the initial POW exchange price (for PWF) and I have no intention of selling … and those capital losses came in handy the past few years.
Voilà !
thinking that BCE and TD could go lower over next few weeks with tax loss selling but could represent a very good entry point for longer term investors.
Hi Larry, investors appear to start preparing and selling in November and through mid/late December. I’m not sure of any predictable bursts in selling for losses. I am curious though and will check with friends who know more than me on this.
And for sure, beat up stocks can offer value at times, but they have to fix the issues that brought them down.
Thanks for the comment and for dropping by.
thank you Dale. A question about Seeking Alpha – I have been reading it for years and recently it seems that my free access is gone and I can no longer read any articles (can only see the headlines). Did I miss something or is free access no longer possible?
Hi Larry, yes they have greatly cut back on any free reads. And many have reported they are not getting any free reads. It has some good tools and is a good resource. I’m not sure of the costs. I get free access as an author.
Hi. Nice reminder to rebalance – thanks! Moving 3% of our portfolio from XUS to XEF to keep us at our portfolio targets – US @ 35%, EAFE @ 25%, Cdn @ 20%, Emerging Markets 5% and bonds 15%. The crazy performance of the US takes some effort to stay balanced!
Nice Greg, that’s some sensible allocation. Accumulation stage?