How to put together a stock portfolio that will carry you comfortably into retirement.  

Pat McKeough

By Patrick McKeough,

Special to the Financial Independence Hub

During your working years, you put yourself on an investing regimen. Each year, you set aside a fixed sum to invest. It’s important to continue investing the same sum (or raise it) through good years and bad. The same sum buys more shares in “bad” years, when prices are low. It buys fewer shares in good years, when prices are high. This cuts your long-term average cost per share.

The process reverses in retirement

In retirement, you reverse the process. You sell enough stock every year to raise the cash you wish to extract from your portfolio. You may sell more stock in years when you feel prices are high. You should sell less when prices are low. But either way, you should aim to sell in a way that leaves you with a stronger portfolio that is better suited to your goals and temperaments.

To practice the Successful Investor method, you need to get acquainted with a number of well-established stocks with a history of earnings and, in most cases, dividends. You choose your yearly purchases from this list, based on their fundamental appeal.

Spread money across five main economic sectors

You also take care to spread your money out across most if not all of the five main economic sectors: Manufacturing, Resources, Consumer, Finance and Utilities.

Some of your selections will seem particularly attractive in light of the value they offer, based on earnings and balance sheet information. Other selections will cost more in relation to these measures, but will make up for it with better growth potential. So, rather than aim for a value or growth focus in your portfolio, you’ll have some of each.

You also take care to downplay or avoid stocks that are in the broker/media limelight. Some stocks work their way into the limelight because they are profiting from an investment fad. Some get there through stock promotion.

No need to worry about how much money to spend or when to buy

Some stocks in the limelight are good businesses that deserve attention. But the limelight blows their appeal out of proportion. This builds up investor expectations for these stocks, often to unsustainable levels. Some limelight stocks live up to these heightened expectations, or even exceed them. But most limelight stocks eventually stumble. When the inevitable disappointments emerge, stock price downturns can be sudden and brutal. Some are permanent. That’s why these stocks should make up at most a modest part of your portfolio.

Note that you don’t need to spend time thinking about how much money to invest. You invest the same amount every year. Of course, you will occasionally raise or lower your yearly commitment for an indefinite period, because of changes in your income or expenses.

You also don’t spend time worrying about when to buy. You buy every year. It’s best to do your buying as early as possible in each New Year.

That’s how we invest for our wealth management clients, to the extent that this is possible for each client, in light of his or her temperament and circumstances. Instead of agonizing over how much to invest or when to buy, we invest each client’s funds as soon as they become available. Rather than depend on predictions, we focus on investment quality, and portfolio balance and diversification.

That’s where we can create the most value, so that’s where we spend most of our time and effort.



Pat McKeough has been one of Canada’s most respected investment advisors for over three decades. He is the founder and senior editor of TSI Network and the founder of Successful Investor Wealth Management. He is also the author of several acclaimed investment books.

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