Monday, May 26, 2014

Portfolio Theory

The theory is that you should subtract your age from 100 and invest the answer in stocks and the rest in bonds or interest bearing vehicles. So if you are 20, you should invest (100 - 20) 80% of your portfolio in stock and 20% in bonds. If you are 60, you should invest (100 - 60) 40% in stocks and the rest in bonds.

With the above, the theory was that you should put interest bearing vehicles like bonds and GICs in your RRSP account because tax rates are higher on interest income than on dividend income or capital gains. The stocks should be in your trading account.

I have never followed this. When I started to invest in the 1970's interest rates were really high so I bought safe GICs and Canadian Savings Bonds. Later I invested also in bonds. The interest rates on these investment vehicles peaked around 19.5%. When interest rates started to come down, I started to invest in stocks. When interest rates went below 10%, I got out of bonds totally.

Currently the main stocks in my portfolio are dividend growth stocks. This is true of my RRSP account as it is of the Trading Account and my TFSA.

On my other blog I am today writing about Leon's Furniture Ltd. (TSX-LNF, OTC-LEFUF) ...continue...

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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