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Follow up Question on Asset Allocation

by Ram Balakrishnan
August 27, 2007
Reading Time: 2 mins read
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The following question (slightly edited) was a follow-up to yesterday’s post:

If I buy into the merits of passive investing, do you think it makes sense to sell the 40 or so stock holdings in my present portfolio and start over with ETFs? Should I instead keep the best Canadian and American equities in place as part of my Canadian and American % holdings and sell off the others to put into place the missing components of a balanced portfolio with the appropriate ETFs? I am concerned about the high commission costs to buy and sell the stocks and funds I have (many are of good quality) in order to reconstruct using ETFs. I am with a $29.99/transaction discount broker and the cost of conversion will be very high.

My situation is similar to yours. Our entire portfolio was in about 20 stock holdings purchased over the years and one of the main reasons for moving to a mainly passive portfolio is that I don’t have the time or the inclination to research many individual stocks anymore. Here’s how I am moving to a mostly indexed portfolio (your mileage may vary):

  1. Apart from Canadian equities, which will be in direct holdings in a handful of stocks, all new money will be invested in ETFs or index funds.
  2. Whenever I sell an existing position, I buy ETFs with the proceeds.
  3. I’ve been doing this for over a year now and I still have holdings in six individual positions, invested in blue-chip stocks like GE, Home Depot, Pfizer, AIG, Altria and Anheuser Busch. I plan to sell them when they are fairly valued (trading at the high range of their historical p/e ratio) but that could take a few years. I am in no hurry because all the stocks pay dividends, so I’m paid to wait.

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  4. This and That
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