Old tax returns aren’t as much fun as mountain music but they provided an eye-opening experience for Toronto-based accountant Mark Goodfield, a.k.a. The Blunt Bean Counter.
When I was a young accountant and happened upon an estate return, I was often amazed at how much wealth the grandmother had accumulated at death. This applied to grandfathers too, but women tend to live longer, so I noticed the tendency more with grandmothers. The accumulated wealth was typically in conservative marketable securities bought over many years.
What I found remarkable, as I saw this time and time again, was that blue-chip stocks dominated these portfolios. (Mutual funds were just coming into vogue and no one had heard of an exchange-traded fund (ETF).)
Each portfolio had the big Canadian bank stocks, insurance companies, utility companies and the Bell Canadas, Canadian Tires and Thomsons of the Canadian stock universe, plus some large high-quality US stocks sprinkled in. Being a naïve and arrogant young investor, I somewhat derisively at the time called these stock holdings ‘grandmother portfolios’.
As I look back, an older me should have given my younger self a good swat upside the head, as these portfolios hit on most of the critical tips investment managers and experts still suggest today (other than maybe a little more global diversification and possibly some alternative investments):
■ they were fairly well diversified;
■ they very rarely turned over;
■ and they contained stocks that generally paid dividends that grew over time.
Shredding old tax returns—an eye-opener
So why am I talking about grandmother portfolios? Well, a couple months ago I followed my own advice and shredded some of my older personal tax returns. While shredding the returns, I entertained myself by looking at the income earned each year and the capital gains (Schedule 3), which detailed my stock dispositions for each year.
I have always liked to have some risk in my portfolio, and over the years have taken some shots with disruptive technology stocks, ‘find that big mine’ gold stocks and ‘let’s hit the gusher’ oil stocks, among other rather poor stock selections. However, I was astounded when I looked at how many of these flyers resulted in capital losses on my old returns.
The technology stocks included household names such as:
■ Samsys Technologies (RFID readers);
■ International Verifact (forerunners of point-of-sale payment terminals);
■ GenSci Regeneration (bone repair and generation for dental use); and
■ Zeox Inc. (using Zeolite for environmental waste)
Some of the crazy gold stocks included such sterling names as:
■ International Pursuit;
■ Gerle Gold (actually looking for diamonds in the Northwest Territories);
■ South Pacific Resources (a stock that followed in the draft of Bre-X when it was going up);
and the oil stocks included:
■ Dome Petroleum (a famous oil stock for those of you of my vintage); and
■ Mart Resources (a Nigerian oil play).
The above names are meaningless, but entertaining to me and maybe a couple of readers. But what shocked me about my shredding exercise was the number of flyers I had taken over the years. (I actually hit on a couple of others, but that was luck and not relevant to this post.)
My point is, I was shocked at the time and effort—let alone the money—I wasted trying to chase down the next big thing.
The moral of the story
While I have slanted this story on purpose to make a point (I typically also had a substantial part of my portfolio in quality stocks and alike), in retrospect I would have had a larger nest egg if I had stayed away from the above speculative flyers and only bought higher-grade stocks.
As an accountant I cannot tell you what stocks and bonds to purchase. But after my shredding exercise, I would suggest the following general investing principles be considered:
1. buy high-quality stocks, ETFs or mutual funds;
2. keep the turnover of these securities to a minimum;
3. diversify across countries and sectors;
4. consider stocks that pay dividends that grow over time; and
5. keep your flyers to a minimum—or better yet, don’t take any flyers.
In conclusion, invest like your grandmother.
This article provides general information on various tax issues and other matters. The information is not intended to constitute professional advice and may not be appropriate for a specific individual or fact situation. It is written by the author solely in their personal capacity and cannot be attributed to the accounting firm with which they are affiliated. It is not intended to constitute professional advice, and neither the author nor the firm with which the author is associated shall accept any liability in respect of any reliance on the information contained herein. Readers should always consult with their professional advisor.
This is an edited version of an article that was originally published for subscribers in the October 2019, issue of The Taxletter. You can profit from the award-winning advice subscribers receive regularly in The Taxletter.
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