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Topic: Value Stocks

Portfolio strategy 101: Avoid a “fragmented” portfolio

Here’s a great starting point to find balance in your portfolio strategy and make money over the long haul

If you build a portfolio as we advise, you improve your chances of making money over long periods, no matter what happens in the market.

Here are some tips if you’re looking to build a sound portfolio.

The Profits from Hidden Value

Learn everything you need to know in 7 Pro Secrets to Value Investing for a FREE special report for you.

Canadian Value Stocks:
How to Spot Undervalued Stocks
PLUS! Our Top 4 Value Stocks

Avoid a “fragmented” approach when developing your portfolio strategy

Many households and even some individuals have five or 10 separate investment accounts. These accounts may include RRSPs (regular and spousal), TFSAs and other registered accounts, personal and joint accounts, corporate accounts, LIRAs from past employment, children’s accounts, trust accounts and so on.

In addition, some investors have one or more of what you might call “legacy” accounts. These are accounts with brokers you no longer do business with, but you never quite get around to transferring.

This fragmented-portfolio situation is more common than you’d guess. Many investors deal with it by adding up the total value of their accounts from time to time, to calculate their net worth. Most also look for performance discrepancies among accounts. But all too many take little more than an occasional glance at the relative weight of the various securities they own. They have little if any idea of how much impact each holding has on the portfolio as a whole.

Decisions you need to make in planning your portfolio strategy

You generally have to keep your various accounts separate for tax and other purposes. But when making portfolio decisions, it pays to look at your holdings the way we look at our clients’ portfolios at Successful Investor Wealth Management Inc. Essentially, you need to look at all your holdings as if they were in one big account. Here’s a simplified way that you can do it.

Start by listing all your holdings on a single electronic file (or piece of paper), and converting their value to Canadian funds. Then you separate them by kind. In particular, you’ll want to group your stocks (plus equity-type holdings like REITs) in one section, and your bonds and other fixed-return investments, like GICs, in the other.

Our one-big-portfolio analysis goes a lot deeper, of course. But the balance between stocks and bonds—call it equity and debt if you prefer—is a key indicator. That’s because bonds give you higher stability than stocks in the long term, but at a cost of lower returns than stocks.

Finding the balance between holdings in your portfolio strategy

Next, determine the economic sector of each of your stock holdings. (You can do this by referring to past issues of our newsletters. Every time we update our analysis on a stock we cover, we provide you with its economic sector and other crucial indicators.)

Then, you need to do some arithmetic.

First, you add up the value of each of your stocks, regardless of which account you hold it in. Then you calculate the value of the total portfolio. You then figure out what percentage weight each of your stocks represents in your total portfolio. You may find this figure ranges from a low of less than 1%, to a high of 10% or more.

Portfolio strategy tip: Add new stocks as your portfolio’s value increases

When your portfolio gets into the $100,000 to $200,000 range, you should aim for perhaps 15 to 20 stocks. If you’re married, it’s best to treat your family holdings as one big portfolio, even if you and your spouse keep your money separate. That way, you can be sure you aren’t operating at cross purposes, or investing too much of the family fortune in a single area.

When you get above $200,000 or so, you can gradually increase the number of stocks you hold. When your portfolio reaches the $500,000 to $1 million range, 25 to 30 stocks is a good number to aim for.

Of course, you may fall a few stocks below that range, or go a few above it, particularly when you’re making changes in your holdings. That won’t matter if you follow our three-part investment advice: invest mainly in well-established companies; spread your money out across most if not all of the five main economic sectors, and downplay stocks that are in the broker/media limelight.

Our upper limit for any portfolio is around 40 stocks. Any more than that and even your best choices will have little impact on your personal wealth.

Having a sound portfolio strategy is the difference between succeeding and failing with your investments. What strategy do you follow in selecting stocks? What techniques do you use that are different than ours?

Are your stocks scattered in different accounts? How do you keep track of what is happening with your portfolio?


  • Richard 

    I have followed this strategy from day one joining TSI, using a number of spreadsheets as means of keeping my mind exercised in retirement. It gives me a clear indication of how well my portfolio is performing as well as an indicator when the portfolio is out of balance. Using Pat’s advice through monthly newsletters make it fairly easy to set up.The next best thing to letting Pat and his team do it for you! Just my humble opinion.

  • The number of holdings in my portfolio grows naturally through corporate spin-offs. Recently, Brookfield Renewable BEP.UN spun off BEPC or IBM spun off Kyndryl Holdings.
    When these spin-off occur, I would like TSI to advise it clients whether to hold onto assets or sell them.

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