A few weeks earlier, I asked you what you thought I should do with the $3500 I had put into my Tax Free Trading Account with Questrade.
I was deliberating between buying some BMO bank stocks (I currently only own 45 shares) or adding more HSE Husky Energy (I recently bought 100 shares). My TFSA portfolio included about 10% in ETFs and the rest of the portfolio was dividend producing stocks. Needless to say, the allure of dividend investing really attracts me.
However, this quickly changed when I realized that I hadn’t balanced my ETF portfolio for the year. When I looked at the pie chart of my portfolio, I saw that the ETFs were a teeny tiny portion of my entire portfolio. I’m a visual person and seeing this helped me realize that I needed to incorporate more ETFs.
Also, looking back at my investing journal, I had sold an entire ETF from my lazy couch potato portfolio (it was recommended by Money Sense) which included 25% proportions in each XDV, CYH, CPD, and XTR. When I read my investing notes, it seems like I sold XTR in 2010 to get enough capital to buy some dividend stocks. At the time, I probably told myself that I would just buy them back… but it seems like I never did.
Whoops!
So being the good ETF investor that I am, I bought more shares of XDV, more shares of CYH, more shares of CPD, and I bought shares of XTR to make sure that everything was balanced (about $1000 in each). This took up $2000 of the $3500 I had allocated to my Tax Free Trading Account this year.
Now, my ETF portion of my portfolio takes up more of a respectable proportion. Although it’s so tempting to add to my positions in the dividend stocks (that means more dividend payments weeee), I realized that most of these stocks were already taking up room in 10-15% of my portfolio. That’s a lot!
The great thing about these ETFs is that they pay out a monthly dividend as well. The downside is that there is an MER with ETFs (though not much). I think the peace of mind of a diversified basket of stocks within that ETF is well worth the small price tag of the MER. Stocks are volatile and although they’re enticing and alluring, a prudent investor should make sure they have a good proportion of both.
I left the $1500 in my account so that in case “Sell in May and Go Away” fulfills itself in the summer, I will still have some cash to use in case there’s a dividend stock sale going on or if I was tempted to average down. This is the probably the first time that I’ve been disciplined enough to leave cash in the account and not buy immediately for the sake of buying because I have money to invest.
I know, I know. I’m learning!
Readers, which ETFs are you a fan of? Would you have gone the dividend route or the ETF route if you were me?
I’m definitely a fan of the basic market ETFs (XIC, VEU, VTI), but if you have an interest in dividends, XDV is a decent blend between the two.
Are you concerned that you may eventually have overlap in companies if you’re buying individual stocks as well as a dividend-focused ETF?
@Vicky- Yes, that’s a good concern. There are many financials that the ETFs hold that I have (like SLF and BMO) and also telecoms like BCE and TU.
I just take it as a compliment that these funds like the same things I do lol. However, I do need to try to make sure that as a sector, I’m not too overly weighted.
Sigh, I really need to learn more about investing. Once I pay off my debts I promise myself that I’m going to start learning the ropes of this stuff. I had always gone the easy route of just dumping money into RRSPs, but I’m sure that is far from being the best option. Did you start learning all this stuff on your own?
@MM- You’ll learn-and once you learn you’ll be so excited and happy that you did. How I got started was reading PF blogs actually! And books!
I started off with putting money into RRSPs too and thought that was all there was. RRSPs and mutual funds. It wasn’t until I saw sh*tty returns with my investors group mutual fund that I realized there might be something else out there! The best for any investor to start would be the TD eseries. Millionaire Teacher might be a good book for you to read (it has all the basics) and of course, My University Money’s ETF ebook! (it’s free!)
Good idea to pay off your debts first before you start investing but some people start investing while they have debts (especially debts that are tax deductible, like student loan debt).
I just realized you can type TFSA using only one hand on the keyboard
I pick individual dividend stocks for my equity portfolio but choose ETFs (like XBB) for my fixed income portfolio because I know very little about bonds.
I love XBB! I have it in my RRSP and I need to top up that one too (thanks for the reminder).
For your equity portfolio- do you mean your nonregistered?
I like that approach- it sounds like its working well for you! For your dividend portfolio, how many different stocks do you own?
I’ve got about 30 or so dividend paying stocks right now. Most of those are in my nonregistered accounts but I have a few low yielding ones in my RRSP as well.
Wouldn’t you be better off holding dividend producing securities outside of a TFSA given their favourable tax treatment?
@Liggsie- Great question Liggsie! Yes, that’s what I had been saying all along but because I had contribution room I transferred my dividend producing securities to my TFSA (the CAD dollar ones anyway).
The reason I did this is because in case I sell my dividend producing securities (which has happened in the past and I can’t guarantee I won’t) I will have to pay capital gains tax if it’s outside of a registered plan. Also, the favourable tax treatment isn’t as favourable anymore
Another reason (which I would rather not admit haha) is because my record keeping for buying and selling and adjusted cost base etc. is TERRIBLE and if I keep it in a TFSA I won’t have to worry about reporting income etc. for my dividend payments!
I have a number of favourite ETFs depending on what sector you’re looking, or time frame, or risk tolerance.
I’m with iTrade so there are a bunch of formerly Claymore ETFs (Now ishares products) which you can trade for free provided of course you hold them for “the long term” (which means 24h or more… yes, a whopping 24 hours)
I like the bond ETFs only because my TFSA is too small to consider such things directly.
On the unregistered side of things, I just today bought 100 units of “COW”.
@SAC- LOL 24 hours or more- I must be super long for everything then lol. I noticed that the Claymore ETFs I hold are now iShares (they were being converted in my questrade accounts). I think Questrade does the same thing (I need to look into this) but good to hear that iTrade does this.
COW? I just googled that and it shows: iPath Dow Jones UBS Livestock Total Return Sub-Index ETN
That’s awesome!
I have opened three Questrade accounts (two RRSP – locked-in an regular) plus TFSA. I have used your promo code so I hope you’ll get a few hundred dollar in free trades!!!
@Etienne- Awe that’s awesome! Thank you!!
It looks investors already sold and went away waaay before May
I like the ideas of leaving cash because I still believe we could see more on sale this summer.
@Beating The Index-
I know you’re good at picking up sales! I also need to be cognizant of my GENERAL investments and how much I have in cash and how much I have in equities or real estate. Hard to keep some cash at hand when you know the sales are good!
What I admire is that you stuck to the strategy you set forth in 2010. ETFs or Dividend Sotcks is not as important as having a strategy you are happy with. Bouncing around means you lose because you inevitably fall for market timing.
I recently re-balanced some holdings. I had one investment making nearly 30% of my TFSA. Re-balancing work with stocks too
@PIE- LOL I was only reminded of this strategy by readers- if it weren’t for you guys to remind me what I said earlier, what would I be doing??
I’m a stickler for market timing (or at least try to be) I must admit
I would have gone with the dividend stocks. Based on the XDV distributions in the last 4 months, and it’s current price, I calculate it’s annual yield to be 3.93%.
The following stocks would provide you with a higher yield:
BMO, 4.7%
BCE, 5.5%
PWF, 4.8%
CM, 5.0%
The 0.53% MER is low, however over 10 years, $4,000 invested will cost you $212.56 in fees which is 5.3% of your initial investment. The same $4,000 invested in 4 stocks would cost you $39.96 in trading costs.
Awe thanks for the breakdown Kanwal! That’s very helpful.
XDV is a very teeny portion of my current holdings and I do own BMO and BCE but was hesitant to add more just because I had bought BMO and BCE at lower prices.
It’s always the dilemma isn’t it
Add more or invest in ETFs.
I wanted to stick to my original strategy but I always do intend to buy more dividends. I just felt that my dividend investments were overshadowing my ETF investments and I wanted to “add more eggs to the basket” so to speak by purchasing ETFs.
The 4 stocks might be volatile over 10 years though- who knows what price they’ll end up being? I guess XDV has seemed less volatile than single dividend stocks.
I’m just new to your site and I’ll have to come back and read up some more, but I would generally say to investors diversification is so important and it’s really tough to be diversified buying individual stocks. You really have to have a lot of money invested in individual stocks to be properly diversified. Also since it’s a tax free trading account I’m assuming it’s a long-term investment strategy.
Hi BF, yes that’s true- it is tough to be diversified buying individual stocks
That’s why I bought more ETFs 
Yup, Tax Free Trading Account pretty long term- the dividends sort of “force” me to be long term. However, the great thing about the tax free trading account for me is that if I decide to sell for a profit, I don’t have to pay capital gains.
Ahhh you just gave me an idea for a future blog post “What is The Ideal Number of Stocks You Should Have in Your Portfolio?” thanks for the inspiration!
You’re welcome!!
Glad to be a muse 