TFSA investment portfolio that goes all-in on Canadian dividend stocks

A nearly $40,000 TFSA all-in on Canadian dividend stocks

Experts warn he needs to rethink diversification

by

Sergio

Age: 42
Location: Ottawa
TFSA total: $39,919
Strategy: Canadian dividend-paying stocks

Sergio, 42, has been investing in his TFSA for three years now. After receiving a small lump of cash, he started his TFSA after a bank employee at his local branch suggested it as an option. “I had done some investment reading at the time and had already been educating myself on the topic,” says Sergio, a government employee in Ottawa. “I had already sold all the mutual funds in my RRSP and had started at a CIBC online brokerage. I decided to do the same for my TFSA.”

Sergio’s entire $39,919 TFSA is invested in equities, almost all Canadian dividend-paying blue-chip stocks to be exact. And most of the names are very familiar to stock investors, including Enbridge, BCE, BMO, Bank of Nova Scotia and Fortis. His returns have been wonderful—about 10% net annual return since inception. “I feel like my method of investing is doing well but I would value some feedback from a pro on what I could be doing better,” says Sergio. “I like the buy and hold strategy and am willing to ride out the highs and lows.”

However, Sergio does have one main concern —he wonders if he should be diversifying more. “Am I shooting myself in the foot by not being in a larger variety of sectors?” he asks. “Or should I just go to ETFs to get a bit of diversification? Honestly, I think I’m doing better yield-wise by sticking with individual stocks—and dividends are what’s key to me.”

In the long run, Sergio would like to add some geographic diversification to his holdings and if he does this, he wonders what stocks or ETFs would fit the bill. “Are there advantages or disadvantages to adding some individual international dividend-paying stocks to my portfolio? Is there a better way to get diversification? Or should I just stay the course with Canadian dividend stocks? I’d like some advice on that since I plan to use this money in the long-term to supplement my pension.”

Sergio’s TFSA holdings


Stock Ticker Amount
Altagas ALA $2,434.92
Enbridge ENB $4,045.86
Emera EMA $3,592.16
BCE BCE $3,229.00
Fortis FTS $2,546.40
Bank of Montreal BMO $4,228.80
Bank of Nova Scotia BNS $3,011.60
CIBC CM $4,901.20
Toronto Dominion Bank TD $3,149.20
Royal Bank RY $3,093.30
Choice Properties REIT CHP.UN $2,445.12
Brookfield Infrastructure Partners BIP.UN $2,040.40
Brookfield Renewable Partners BEP.UN $1,041.82
Cash $160.00
Total $39,919.78

What the pro says

“Sergio is off to a good start,” says John DeGoey, a portfolio manager with iA Securities (iAS) in Toronto. “It also seems as though he’s self-aware enough to recognize the biggest concern most people would have about his portfolio—a concentration of 100% Canadian equity holdings.” Here are DeGoey’s tips for Sergio.

He needs to diversify the $39,919 in his TFSA. As most readers know, Canada represents only about 3% of the world’s total stock market capitalization. Imagine going to a big box store with 32 aisles and being told you can only shop in one of them. There might be good bargains in that aisle, but there are likely to be bargains in the other aisles, too. That’s essentially what he’s doing with his TFSA.

The obvious other parts of the world to look at are the United States, Japan, and Europe. If he wants to be a little bolder, Emerging Markets should be considered, as well.  He should consider low-cost, broadly diversified products that provide access to those parts of the world. Perhaps the challenge should be to not put another nickel into Canadian equities until they represent less than one-third of the total value of his TFSA.

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