Buy blue-chip, Canadian dividend stocks

Dan Bortolotti urges investors to contemplate whether their risk tolerance would be as strong in a bear market. “The going will get tough, no matter which strategy you choose.”

No matter what your gut instinct may tell you, sometimes, in fact almost all times, the best bet is following the herd, says notable investing blogger, author, and portfolio manager Dan Bortolotti.

“The real-world evidence is overwhelming that the vast majority of investors trying to beat the market fail to do so,” he tells Investor’s Digest.

Mr. Bortolotti began his career as a full-time journalist, working as a writer and editor for 20 years. Over the last four or five years of his career, he specialized in finance and investing. “It became increasingly difficult to carve out a living as a freelance journalist. I was doing just fine, but I saw the writing on the wall,” he recalls.

Then, in 2013, he made the leap into giving financial advice full-time, joining the Bender, Bender, and Bortolotti Team (a wealth management group) of PWL Capital in Toronto. Mr. Bortolotti says, “It’s one thing to write about investing and give people advice and it’s another thing to work with them and give advice firsthand.”

Most recently, he authored Reboot Your Portfolio: 9 Steps to Successful Investing with ETFs, released late last year (and featured in the Investing 101 section of our Dec. 17, 2021 issue). However, he may be best-known for the Canadian Couch Potato blog, which he launched in 2010 along with its namesake podcast in 2016. Mr. Bortolotti also contributes to MoneySense.ca and The Globe & Mail.

So you think you can beat the market?

Mr. Bortolotti says that although there is plenty of intuitive, sensible, well-argued advice in the financial media, it can be difficult for active investors to put into practice consistently, especially when the advice received is contradictory. “It’s this never-ending cycle of disappointment and inconsistency.”

He concedes that it is possible to beat the market now and again through stock picking, but those returns, for example, from buying and holding Apple Inc. (NASDAQ—AAPL) shares, do not beat the market on a risk-adjusted basis. The portfolio manager adds that a well-rounded group of investments by nature will have some parts that are doing well and others doing relatively badly.

Mr. Bortolotti argues that “over any meaningful period”, such as 30 years, market returns are very solid and will be enough to meet most people’s financial goals at an average of seven per cent to 10 per cent annually. Given that outperforming the market is extremely difficult and not necessary to meet one’s investing targets, Mr. Bortolotti questions the wisdom of aspiring to beat it. The portfolio manager says that by and large when meeting clients and prospects, “They don’t think of investing as a hobby,” treating it instead as a chore. Whenever he fields calls from worried clients, he says he advises, “We don’t know the future, so all we can do is diversify.”

Best ETFs to buy

For this reason, the portfolio manager’s “best buys” are asset-allocation ETFs like the Vanguard Balanced ETF Portfolio (TSX—VBAL), iShares Core Balanced ETF (TSX—XBAL) and BMO Balanced ETF (TSX—ZBAL) or, for slightly more aggressive investors, their growth counterparts, the Vanguard Growth ETF Portfolio (TSX—VGRO), iShares Core Growth ETF (TSX—XGRO) and BMO Growth ETF (TSX—ZGRO).

“They just made it incredibly easy to use a single holding in your accounts,” Mr. Bortolotti says of such ETFs, first introduced by Vanguard and traded in late 2018. This can be handy even for more engaged investors trying to co-ordinate holdings across a range of institutions or account holders (as with a married couple). He continues: “They’re pretty similar. They’re not exactly the same, but you could safely go with any of them.”

The balanced portfolios are based on an asset allocation of 40 per cent bonds and 60 per cent stocks. The growth portfolios are allocated 20 per cent in bonds and 80 per cent in stocks. In both instances, quality of investments is key, the stock portion being mainly made up of blue-chip Canadian and US stocks, along with global holdings from developed economies. At the same time, management expense ratios, or MERs, are minimal. (BMO Growth’s MER is 0.20 per cent, for example.) “They really are hard to beat if you can just get your head around it that yes, it really is that simple,” says Mr. Bortolotti. Asked what challenges he faces selling his buy-and-hold strategy, he replies, “It’s boring.”

“If you want to be a stock picker, then give some thought to portfolio construction and pick blue chip, Canadian stocks that pay out dividends,” he says. A stable, long-term portfolio so designed, with some international and US coverage as well, “can achieve market-like returns” according to the portfolio manager.

“It’s a perfectly reasonable strategy and if your heart is in it and you’re more likely to stay the course . . . then you should be doing that.” Nevertheless, Mr. Bortolotti urges investors to contemplate whether their risk tolerance would be as strong in a bear market.
“The going will get tough, no matter which strategy you choose.”

This is an edited version of an article that was originally published for subscribers in the January 1, 2022, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.

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