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A Balanced Portfolio for Volatile Times

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  • 30 August 2019
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We’ve now had an almost uninterrupted 10-year bull market since 2009 after the last recession. And now we hear a lot about the next recession being near and how we should modify our portfolios.
Is it time to go to cash or GIC’s to avoid the losses that are to come? Do we sell equities and buy more bonds? Or, do nothing at all? Well, I think the answer depends on our investing philosophy.
Timing the stock market has always been difficult. A lot of investors get out too early, or too late. Then the same happens when they think it’s time to get back in. During the 2008 recession when equities dropped 30 to 40 % no one knew where it would end. So those that got out of the market probably didn’t get back in until after the great bull run of 2009. We held on to all our equities and by the end of 2009 our portfolio had recovered all losses and we were on our way to the best growth years we’ve seen.
So how do we build a portfolio to take us through these volatile times to come?
Diversification is very helpful, but maybe not in the conventional way of thinking. Most advice is for more fixed income, emerging markets, and some US exposure. I certainly believe that US exposure is very important, it is the largest economy after all. But emerging markets? There is still so much corruption in the world and this is not a sector I need to be in. Read this June 2019 article in the ROB magazine from the Globe and Mail: “Grease Stains. Much of the world has run for so long on the fuel of bribery that it’s hard to see it ever being eliminated. But that doesn’t mean governments and corporations should stop trying.”
And fixed income, well, as I keep repeating, it’s not worth it. Most fixed income doesn’t even keep up with inflation. And btw, your CPP, OAS, and DB pension (if you have one) are fixed income. That should be enough to get one through leaner times. (Although we do have one FI ETF in the US.)
So what’s left? Good companies in North America that pay dividends and keep raising them. The raises in dividends alone give us the inflation protection we need. And the capital gains (or losses) are on top of that.
Diversification comes from choosing companies that have stable businesses that we can understand and will stay around in good and bad times.
Utilities in Canada like Fortis and Emera provide households with natural gas and electricity and will continue to do so in the foreseeable future.
Pipelines, the ones we have, are at capacity and will continue as long as the requirements for fossil fuels continue. (We own Pembina, Inter, and TC Energy.)
Telco’s, these are like utilities with media mixed in. (Who doesn’t own a smart phone these days?) Bell Canada is a very diverse company owning telephone and various media companies, as well as sports businesses. Telus also is a somewhat diversified business. They are in healthcare as well as the telephone business. Both have solid dividend records.
These three sectors are like having fixed income with inflation protection built in. Then there are the other sectors like financials, manufacturing, consumer, that have good solid dividend payers. We currently have 78 % in Canada, and 22 % in US equities.
US Companies are, Altria, AT&T, ABBV, Duke Energy, GlaxoSmithKline, Legget&Platt, Johnson & Johnson, iShares iBox $ High Yield Corp, Wells Fargo Multi Sector Income, and BRK.B.
Canadian Companies, those mentioned already under utilities, pipelines, and Telco’s, and the following:
All big 5 banks as well as National & Laurentian, Boston Pizza, Brookfield Prop. Partners & Infrastructure, Firm Capital, Capital Power, Premium Brands Holdings, Riocan Real Estate Un.
This portfolio has served us well and we plan to stick with it going forward.

If you have opinions on this and would like to share them, please post a comment. Thanks.

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