Two starting plans, which one to choose.

I came into my free trial being risky, wanting to go fast since I have a small amount of money to invest. So I put 10% of my total investment money into 2 bull recomendations and one penny stock that was recomended on the free portion of the site. Also a very cheap penny stock that I found myself. That was about as risky as I wanted to get so I’m good now with that part.

Reading through questions and answers here about the kind of investor I want to be and the right place to start I’m thinking I should follow your advice go into the foundational portfolio with the rest of it since I’ll be able to put more money into investing each month.

So the question is this. I have two plans and I’m wondering if this is solid thinking and if so what are the pitfalls of each. Just to note I won’t be buying CSU for now with it’s $2533 share price so that leaves 10 stocks.

Plan one:
Divide $4000 by 10 and invest $400 in each stock ignoring amount of shares. As time goes on I’ll just cost average if the price goes down but also I’ll buy in at the lowest price I can by using a kagi chart for buy signals. So I won’t buy all of them at the same time.

Plan two:
Just buy as many of the lower priced ones I can afford at 100 shares each. Also using charts for the right buy signal and planning to cost average down the road.

Thanks guys!

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Asked on May 13, 2023 12:11 pm

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Private answer

Hey there,

So I'm going to proceed under the assumption that you are just starting out building your portfolio. If that is the case, I wouldn't worry too much about ensuring your portfolio is fully diversified right from the get-go. For example, you can buy 3 or 4 today, and pick up the other 6-10 in the years to come. Being well-diversified helps limit the volatility of one's portfolio. However, IMO the longer the runway you have for investing, the more your portfolio can absorb that volatility.

For example, when I was just starting out - I had but a few stocks and simply added new stocks as I progressed. Over time, once I felt my portfolio was sufficiently diversified, then I'd look at adding/topping up existing positions to remain in balance.

That said, it is also a personal preference. With that in mind, if one can sleep better being diversified right off the hop, then there is nothing that is stopping one from dividing the initial capital among the full complement of foundational. The important aspect is to keep fees in mind. If one is paying $10 per transaction - I'd avoid this and just focus on a few stocks. If however, one has a commission-free broker like Wealthsimple, then it's not an issue.

Finally, don't worry about share price - it really should not be the basis of an investment. If one wanted to select only a few Foundational stocks to start with, then it is best to focus on those that provide the best value today - not the lowest stock price. The lowest stock price doesn't necessarily mean it is the cheapest so it's important to understand the difference. If it helps, today I view BEP, CNQ, RY and T as being some of the better-valued Canadian Foundationals. In the US the best valued are PFE, BLK, and HD. If you are familiar with technicals, you can also use charts to time entry points, but ensure you are well familiar with the ones you are using. Personally, I stick to RSI as it is the simplest form and has, for the most part, been a good indicator of entry points when I am buying long-term positions.

Mat

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Posted by Mathieu Litalien

Answered on May 14, 2023 1:33 pm

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