Don’t be afraid to take profits

By Dale Roberts, cutthecrapinvesting

Special to Financial Independence Hub

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 strict 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 on my site (link at the end of my bio below), 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.

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 …

Investing in Canadian banks.

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.

Dale Roberts is the owner operator of the Cut The Crap Investing blog, and a columnist for MoneySense. This blog originally appeared on Cut the Crap Investing on Nov. 24, 2024 and is republished on the Hub with permission.