Building a portfolio with stocks and/or ETFs

To recap:

• First: Understand your finances.
• Next: Open a self-directed investment account. For most of us, this will be an RRSP account but in some cases it will be a TFSA. Try and avoid paying an annual $100 administrative fee.
  
• Lastly: buy some stocks or ETFs to begin the actual process of investing.

Buying stock and ETFs is both hard and easy. If you insist on doing all the research yourself, it can be very time consuming. As a novice investor, why bother? Find some good guidance, follow it and as you gain experience and confidence, break out on your own.

One of the easiest ways to quickly build a complete portfolio is by following the advice found on the Canadian Couch Potato site. I have had Couch Potato portfolios and I've been very pleased with the results.

Click the first link, sit back with your notebook or iPad and read. I cannot say enough good things for the Couch Potato site. It is just chock full of good information.

Then click on this link and go to the 2020 portfolios, all based on various ETFs. This is index investing and it works. 

Warren Buffet, the Wizard of Omaha, has said most average, long-term investors are best served by investing in low-cost index funds. Following his famous recommendation to buy the S&P index, simply buy an ETF tracking the S&P 500, such XUS or VFV.

Pretty cool, right? Buy one ETF and you are done. If you like the idea on buying just one ETF but you'd like a little more diversity in your portfolio, buy a portfolio in an ETF like ZGRO from the Bank of Montreal. If you want less volatility, then move to a more balanced portfolio like ZBAL. iShares and Vanguard Canada also have portfolios in an ETF. All are quite similar.

The nice thing about going this route is that you will have exposure to all the best places to put a little money. For instance, XGRO has about 35% exposure to the S&P 500. The S&P was Buffet's fave.

It will take a few years, but eventually you will have sufficient money to make buying individual stocks an attractive option. Today, I'd simply consult the Morningstar Canadian Portfolio recommendations. Sooner or later one or more of the suggested stocks will dip in price, if the dip brings it into 5* territory according to Morningstar rules, buy. I try to keep each individual stock I own to no more than 5% of my entire portfolio value. Even good stocks can get into big trouble. Think Nortel. I don't want to face that risk.

To see a stock-based portfolio, click this link: 15-Minute Retirement Plan.

Why would one want a stock-based portfolio? When I think about this logically, I have to admit that I am not too sure why. It does give one the feeling of having control but so what? I have not checked but my guess is that most folk would do better just putting all their money into ZGRO and leaving it there.

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Writing this made me decide to run an experiment. Friday I started tracking the performance of my Million Dollar Portfolio.

Originally, I wasn't posting anything for a couple of months. But, this Monday my Million Dollar Portfolio took a big jump as the market responded to an announced possible COVID-19 vaccine. The election win by Biden in the U.S. presidential race seems to have been positive as well.

My Million Dollar Portfolio hit $1,031,461.54. I'm posting this because of what it says about volatility. Money invested in the market is volatile. It is far more volatile than you may think. Its leaps, both up and down, leaving you breathless. Be prepared. Always keep in mind that a bear market can easily diminish a portfolio value by a full 20% or more. Refrain from gloating when the market goes up and keep your finger off the sell button when the market crashes. Volatility is normal.