Diversified portfolio

 

Diversified Portfolio

We have all heard how we should have a well diversified portfolio. A stock portfolio must be diversified so you don’t have just one stock, sector, or country. It’s not just stocks, you should be diversified with bonds, real estate, and alternative investments. There is lots of opinions about diversification, John Bogle founder of Vangaurd, suggested you should have your age in bonds versus stocks. An example, if you are 40 you should have 40% of your portfolio in bonds and 60% in stocks, if your 50 ,50% bond etc.

Over Diversified

But can you be over diversified?  When we owned mutual funds we had a few different Canadian equity funds as well as US, International and emerging market funds. I was diversified because I owned thousands of companies around the world. But when you overlap with more than one investment in a single country or sector you might be over diversifying, as most hold the same or similar companies. I found most of the Canadian equity mutual funds hold the same companies and sectors.

Our TFSA

At the moment, in our TFSA we hold ZWC, ZWU, and ZWB. They are covered call Canadian ETF. ZWB is the Canadian banks, ZWC is Canadian dividend ETF, and ZWU is Canadian utilities. If you look in ZWC its top holdings are 36% banks, 21% energy,15% communication,10% utilities. ZWB holds 100% financial services and ZWU holds 46% utilities, 25% communication, 28% energy. That’s a lot of Canadian banks, energy, and communication. We are over diversified and might be better if we only owned ZWC. How did this happen?

Portfolio Creep

It’s called portfolio creep. Over the years you buy one sector that is doing good or supposed to be the next sector to do well, and next it is something else but you like what you already have so you keep it. That’s why you should look at your portfolio every so often and ask yourself if you are diversified and should change anything. Currently, we are not going to change anything in our portfolio, but when doing changes I will keep portfolio creep in mind. Feel free to check out our portfolio.

 

Comments

  1. I like John Bogle’s easy-to-use investing rule for bonds, however, I tend to be a bit more aggressive. This is simply because I need to play catch-up on some lost time, and do not mind some volatility in my portfolio. First time I’m hearing of “portfolio creep” – we learn something new everyday. Your portfolio mix is definitely interesting. I’m not very familiar with covered call ETF’s…something to check out.
    Great article as usual, Steve!

    • Thanks Enoch. I agree when I was younger we where 100% in equity but now in my RSP I am conservative and follow the couch potato portfolio with some bonds, but my TFSA is all dividend ETFs for yield with no fixed income.

  2. I suffered from a huge case of ‘portfolio creep’ and had over 40% in Canadian stocks. Now it’s at a much more reasonable 28%. I have multiple ETFs scattered everywhere, including TD e-series and I can’t bring myself to consolidate to just a few, so I just check my asset allocation out quarterly to combat this portfolio creep. So important to do, thanks for the remainder! 🙂

    • Thanks GYM. It is so easy to get complacent especially with the Canadian market as it is concentrated with financial, Materials, Utilities, telecom and is less than 2% of the world market. That’s a great idea to check ­ your asset allocation out quarterly.

  3. I have portfolio creep as well.(I have never heard of portfolio creep before) like GYM I have small amounts in ETFs scattered everywhere. I don’t know what % or my allocation is. Something I will be working on.

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