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):
- 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.
- Whenever I sell an existing position, I buy ETFs with the proceeds.
- 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 responses so far ↓
1 FourPillars // Aug 27, 2007 at 10:29 pm
Very interesting question.
First of all, could you do an in-kind transfer to a cheaper discount broker and do the conversion there? Then you’d be looking at a $200 (Questrade) selling cost vs $1200 at your current broker plus the transfer fee. IB would be even cheaper for the short term.
Another issue is capital gains which I’m assuming are not applicable or they probably would have been mentioned.
Stocks are cheaper than ETFs, I’m thinking for Canadian stocks especially, it can’t be that hard to come up with a list of stocks which would represent a good chunk of the index and would be a bit cheaper. If you’re Cdn stocks seem to reflect the Canadian market then maybe you should keep them.
Mike
2 WhereDoesAllMyMoneyGo.com // Aug 28, 2007 at 12:17 am
Another thing to consider is that sometimes I feel better eating fees if it puts me into a better portfolio. Doesn’t look like it applies to you guys, but if I had a stock whose prospects took a turn for the worse I would have no problem eating the fee to put me into something better. I see some people who are TOO hung up on fees and it becomes a matter of principle. My view is that if you end up with more money in your pocket at the end of the day - THAT is the right decision.
And of course, if you can save a few dollars doing it by finding the lowest fee - then that’s the ultimate solution!
3 Phil S // Aug 28, 2007 at 8:15 am
It also depends upon what your individual stock holdings are… If you have the Big 5 banks or Insurers, then those stocks make up the biggest assets in most Canadian Equity portfolios anyways - you may as well just stay with them. Some large cap companies are so well diversified that they are like a mutual fund as well - GE is the largest Dow Jones component and it’s so diversified it’s like a US index fund (it has businesses in Industrials / Financials / Medical Products / Energy) in one stock. RioCan REIT is the mother of all Canadian REITs, so it’s the majority of any Canadian REIT index. The list goes on and on…
4 LOUISBREITBACH // Aug 29, 2007 at 1:20 pm
I DISAGREE GE DID NOT GO UP FOR YEARS
INDEX DID
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