I think that REIT’s can provide diversification if it focuses on commercial, office space, business segments of the real estate market ( I assume that your real estate exposure is tied to residential real estate).
A reit can also provide a diversified exposure to the Canadian real estate market as a whole and not concentrated in a single province or city..

jd, check out today’s post for my net worth update. The goal is to reach 1 million in net worth by the age of 35. I turn 29 this year.

how long are you planning to reach a million?

FT, I too plan use TFSA’s to hold something that spits out a higher yield or trust to make some extra monthly cash. Over the years I suspect the type of investments will have to evolve as the contribution space grows.

Paul s: I would add a REIT, but I feel that I have sufficient real estate exposure with the principle residence and the rental property.

DAvid: Look me up in 2010!

Only if the weather is like it was the Saturday we met, rather than Regatta day! Look for me in 2010, on my biennial pilgrimage!

DAvid

As others have said, for me there are too many stocks to follow, and too many financials. If you had coincidently bought those two years ago when finaincials were going through the roof, you’d be kicking yourself today. It’s a good test to look back like that.

I’d get rid of all financials but Royal, Power, Manu. and BMO (6.8!!!). I’d add an iShares REIT ETF, and an Iceland bond. Great diversification and great yield.

My thought is that if someone is doing this manouver then they are not generally risk averse to start with. Having less diversification doesn’t make the strategy any worse/better. You only broadly diversify when you cannot handle volatility. More concentrated portfolios will either perform significantly worse or significantly better than any market index. I don’t know anyone that has decent coin from being broadly diversified. Generally they become broadly diversified as they pare down successful concentrated holdings.

My question is do you think you will unwind your Smith Manouver portfolio over the next year or two as the TSFA’s will offer better tax advantages and any debt incurred to invest in a TSFA will not be tax deductible?

Being 75% invested in one sector matters because in the long-run you are exposed to more risk, more uncertainty about value as well as yields.

You also cannot totally predict if and when you will have to sell. This is not your money, it’s the bank’s money. What is the bank recalls the loan while your matching assets are underwater. What if interest rates go up while bank dividends stagnate and another sector of the economy develops. You could be paying 8% prime while banks yield 4% and while sector X is getting large dividend increases.

Frugal: I know you are diversified and 20k is pocket change. But still, you have to set the example your us kids ;-)

Also with the strike at POT we were able to get in at a great price.

@dividendman — going from memory CIBC did a $500m equity offering in the spring which helped them pull their capital requirements back in check. I would hope they factored future loan loss provisions into their requirements.

Achieving an 8% return doesn’t seem unreasonable even in one sector when banks are yeilding up to 6% in dividends and trading at < 1.5x book value and their regulatory capital requirements are easily met so the likelyhood of dividend cuts or share issues are low (except I’m not up to date on CIBC on this).

Not to mention the fact that the consumer banking divisions of all the major banks are growing at a nice clip.

I think it’s a good idea to load up. What does it matter if one sector is 75% of your portfolio and is yeilding 4-6%? It only matters if you’re going to sell or the fundamentals are out of whack – or if you can’t stomach the swings.

DAvid, congrats on paying off the house! Enjoy the no monthly payments for a few months. Maybe you should spend it on another trip to NL? :)

TMW, in hindsight, I should have bought more husky at that price!

Just now I am enjoying the feeling of being debt free, even if only for a few days!

DAvid

Basically, if find that your sector risk is way too large for a leveraged portfolio. Price is important, but you also have to remove sector risk and company risk from your portfolio.

There are deals in REIT, services and consumer stables and you will need those if you are serious about achieving your 8% long-term market return. Being diversified will allow you to sleep better at night if and when banks start cutting their dividends ;-)