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One of the big challenges in the online brokerage business is the client who opens an account, adds cash and then does nothing. Nobody wins in these situations – brokers generate no fees or commissions, and clients let their money idle unproductively in cash.

Starting out as a DIY investor can be intimidating. You mean to start a portfolio, but you keep second-guessing yourself and end up letting your money earn nothing while sitting in cash. This outcome is obviously on the mind of a reader who wondered about getting some help with portfolio-building. “If one opens an online account with an online broker, would it also be desirable to hire an independent financial adviser to review and advise on the appropriateness of the portfolio, say twice a year?”

I think it would not be desirable to do this. If you’re going to consult an adviser twice a year, you may as well let the adviser manage your portfolio. A better idea: Get a consultation on building a portfolio and then take over yourself. Follow-up consultations every few years make sense if you have changed circumstances.

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Or, use a robo-adviser to build and manage your portfolio for you. You’ll get a customized portfolio of low-cost exchange-traded funds at a cost of roughly 0.7 per cent or less, including advice and fees associated with your ETFs.

If you prefer the online brokerage route, consider using a balanced ETF as an investment until you gain confidence. Balanced ETFs come with varying mixes of stocks and bonds, so it’s easy to find one that matches your risk profile. Just add money to a balanced ETF and sit back – the company offering the funds will keep your holdings rebalanced for you. Balanced ETFs are a great long-term investing option, by the way. You don’t need to get more complex.

Fee-for-service financial planners – paid a flat or hourly fee rather than through fees generated by selling and managing investments – are a good option for a consultation on portfolio-building. They can discuss asset allocation and the pluses and minuses of various investment categories, but many cannot recommend specific securities. Here’s a primer I did recently on finding a fee-for-service planner. Included is a link to a national online directory of planners.

-- Rob Carrick

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Stocks to ponder

Exchange Income Corp. With nine buy recommendations, this is a stock to put on your radar screen. It provides both earnings growth and income with its attractive 5-per-cent dividend yield. Jennifer Dowty profiles the stock. (for subscribers)

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The Rundown

For REIT investors, this factor matters a lot more than valuations

A close look at the 12-year performance history of the domestic REIT sector provides two conclusions. One, valuations seem unimportant as a determinant of returns. Two, the yield differential between real estate investment trusts and government bonds, which mathematically is the primary candidate as the driver of performance, points to flattish returns in the next 24 months. Scott Barlow has this analysis. (for subscribers)

Turns out, the fathers of communism were quite the savvy investors

In the 19th century, Karl Marx and Friedrich Engels authored The Communist Manifesto and a number of other books that urged workers to unite and throw off their chains. Both individuals consequently became known as the fathers of communism. What is less well known is that the fathers of communism also traded on the London Stock Exchange. Marx was a bit of a day trader (to use a contemporary term) and Engels managed a large portfolio of mainly blue-chip stocks for many years. Read more from Larry MacDonald. (for subscribers)

Lipper Awards (for everyone)

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‘Embrace uncertainty’: Mawer’s Christian Deckart on what he’s buying, selling, and thinking about markets

Smart small-cap picks help fuel returns for Lipper Award-winning BMO fund

How this tech fund manager outperformed all his peers

Full list: The 2019 Lipper Fund Award mutual fund and ETF winners

Full list: The 2019 Lipper Fund Award top mutual fund and ETF group winners for 2019

Others (for subscribers)

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The week’s most oversold and overbought stocks on the TSX

Friday’s analyst upgrades and downgrades

Thursday’s analyst upgrades and downgrades

Friday’s Insider Report: Insiders are trimming positions in these three dividend stocks

Thursday’s Insider Report: Four dividends stocks that are being traded

Ten companies in the Caisse’s portfolio offering growth and sustainable dividends

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Ten Canadian below-the-radar dividend stocks outside the S&P/TSX Composite Index

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Ask Globe Investor

Question: There are several ways to try to find what is a fair price to pay for an equity, but I would like to ask which one do you use and prefer most?

Answer: Stocks can be analyzed in many different ways. There have been many books written on this subject, with about as many theories as to the best approach. Over the years, I have observed that there is no one size that fits all when dissecting the equity market.

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For example, my number one focus when I look at a company’s financial reports is the bottom line. What are the net earnings, and how do they compare with the last quarter, last year, or five years ago? If they are not growing at a satisfactory rate, it raises questions about the future of the company and the direction of the share price. On that basis, the price/earnings (p/e) ratio of a stock is my key go-to number in determining where to find value for money.

That said, some of the best-performing recommendations in my newsletters have p/e ratios that are off the charts or even non-existent (the company isn’t profitable). Amazon.com is a case in point. When I first recommended the stock, in January 2017, it was priced at $817.14 and had a p/e ratio of 182.80. I cautioned readers about this at the time, but still rated the stock a Buy because, as I wrote, “I happen to believe it will be even more pricy a year from now”.

Today, the stock is trading at more than double the original recommended price. The p/e has improved, but it is still very high at 79.13. If I had focused exclusively on the p/e ratio, I would not have recommended the stock in 2017 nor would I do so today. And a lot of readers would have missed a profit opportunity as a result.

So, what’s the bottom line? Don’t be dogmatic when it comes to analyzing stocks. Look at the big picture – what a company has done so far and what it is poised to do in the future. You won’t always make the right call – no one does. But you’ll be right more often than not.

--Gordon Pape

Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.

What’s up in the days ahead

Gordon Pape looks at Canada’s “Old Faithful”: Fortis, which just raised its dividend for the 46th year in a row.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Globe Investor Staff

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