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Investor Education Advice for a conservative investor and how to contend with Enbridge’s suspended dividend reinvestment plan

I have a $1.5-million portfolio, with nearly 60 per cent in cash, bonds and guaranteed investment certificates, about 35 per cent in stocks and the rest in gold. I realize this is super-conservative, but I have been in this holding pattern for the past two years or so as I have been anticipating a significant market downturn before I feel comfortable investing in additional new stocks. In the short term, I will likely accept low rates on interest-bearing investments rather than risk losing capital by investing in the current market. I’m about five to 10 years away from retirement. What are your thoughts?

You said you’re waiting for a “significant market downturn” before you invest, but – news flash! – we just had one: The S&P/TSX Composite’s 11.6-per-cent slide in 2018 was the biggest drop for the benchmark index since 2008, when it plunged 35 per cent.

Here’s another stat for you: Over the past 30 years, the index has fallen 10 times, and in all but one case it rebounded the next year. I’m not saying that the index will definitely rise in 2019 (although we’re off to a good start), but I believe that investors who wait for the perfect entry point – and you’ve been waiting for two years – risk missing out. What if the severe sell-off you’re expecting doesn’t come? Or what if it does come? Will you have the stomach to buy stocks when everyone else is panicking, the economy is in recession and markets are plummeting? It sounds good in theory, but in practice, it might be more difficult than you think.

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Regardless of what your gut is telling you, the truth is that nobody knows what the market will do this year or next year. All we can say is that stock prices tend to rise over the long run, with occasional setbacks that range from mild to severe. Learning to live with these setbacks – instead of trying to avoid them – is one of the most important things an investor can do. Volatility is the price investors pay for the superior long-term returns that stocks deliver compared with bonds and GICs. I’ve found that an effective way to cope with turbulent markets is to invest in high-quality dividend stocks, which pay you whether prices are rising, falling or going sideways. And remember: If a company’s sales, earnings and dividends are growing, the share price will also rise over the long run. (See my model Yield Hog Dividend Growth Portfolio for examples of high-quality dividend stocks).

While you seem to be focused primarily on avoiding capital loss, as someone nearing retirement you should also consider the benefits of increasing your exposure to equities: A diversified portfolio of banks, pipelines, utilities, consumer stocks and other dividend-paying equities will generally provide a higher yield than bonds, cash or GICs. And, because many such companies raise their dividends annually, your income stream will grow in retirement, countering the effects of inflation. That’s not the case with interest-bearing securities (that’s why they’re called “fixed” income). I’m not suggesting that you should sell all of your fixed-income holdings – the stability they provide has value – but shifting a portion to stocks would seem to be a prudent move.


I own more than $100,000 of Enbridge Inc. shares that were enrolled in the company’s dividend-reinvestment plan (DRIP), which was recently suspended. Enbridge is the largest position of the nine stocks I own and accounts for about 22 per cent of my total equity exposure. My discount broker (Scotia iTrade) continues to offer its own DRIP for Enbridge shares and I was wondering if I should move my shares there and enroll them in its DRIP?

Given that you own just nine stocks and Enbridge already accounts for more than one-fifth of your equity portfolio, for diversification purposes you may wish to consider using your Enbridge dividends to purchase shares of other companies instead. DRIPs have their advantages: They make the reinvestment process automatic and they eliminate brokerage commissions. But with discount brokers charging $10 or less for trades, the commission savings from DRIPs aren’t as significant as they used to be. You could invest your cash – from Enbridge and other sources – manually a few times a year at very low cost. This approach, which I use with my own portfolio, would also give you control over how and when you reinvest your money and allow you to add stocks that you don’t already own. Nine stocks isn’t a bad start, but adding a few more – and making sure to spread your holdings across different sectors – would improve your diversification and lower your risk.

E-mail your questions to jheinzl@globeandmail.com.

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