Introducing the Financial Freedom is a Journey Portfolio

(Last Updated On: March 19, 2017)

The purpose of this post is to introduce the Financial Freedom is a Journey Portfolio (“FFJ”). This is an actual portfolio of equity investments in which all investment decisions are made with a long-term perspective in mind.

I undertake to provide monthly status reports of all activity. The vast majority of any activity will consist of the receipt of dividends and the automatic reinvestment of same. Occasional purchases will be made but sales are expected to be extremely rare.

Over the course of the last several years I have read countless investment blogs where bloggers provide status reports of their investment portfolios. I find it of interest to read these posts because I occasionally get an investment idea worth checking out.

In some cases, bloggers disclose ALL their assets and liabilities. I will never do this and will restrict the disclosure of information to a very small component of our non-registered equity holdings. In essence, I am lifting my “financial kimono” so as to hide everything above my ankles.

I undertake to recap any activity which transpired in the previous calendar month. Should I decide to execute a trade, it is likely I will have insufficient time to post something on this blog before I execute the trade. I will, therefore, do my utmost to write a post at the earliest opportunity subsequent to a trade.

Another reason for undertaking this initiative is to continue to encourage our daughter to take a greater interest in investing. I would consider this project a success if she learned that trading time for money is a terrible way to become financially free.

I want to continue to impress upon her the importance of learning to make money work for her. She can freely decide whether she wishes to continue to trade time for money once her money is working for her.

Investment Criteria for the FFJ Portfolio

My investment criteria for the FFJ Portfolio is:

  1. invest in well-established companies. I have learned through experience that I sleep better at night owning these types of companies versus speculative entities. I, in fact, actually look forward to market downturns. My reasoning for this is that the companies in which we invest are usually the first to recover when conditions improve, and I prefer buying things when they are on sale (including the shares in wonderful companies).
  2. focus on companies with a long-term track record of paying an increasing stream of dividends. I have and will continue, however, to occasionally make an exception if I am confident the company will introduce an attractive dividend policy. Examples of such investments I have made include VISA (NYSE: V) which we acquired shortly after the IPO, and Broadridge Financial Solutions (NYSE: BR) and CDK Global (NASDAQ: CDK). We acquired shares when these two companies were spun off from ADP (NASDAQ: ADP). Shares in these 4 companies are held in other investment accounts and not in the FFJ Portfolio.
  3. shy away from companies in the broker/media limelight. I am always concerned when investor expectations are raised to excessive levels. The reasoning for this is that failure to live up to expectations can result in plunging stock prices and recovery may not occur.
  4. invest in companies within the 5 main economic sectors (Utilities, Finance, Consumer, Manufacturing and Industry, Resources and Commodities). My rationale for doing so is to avoid excessive exposure to a particular segment of the market and also to lessen portfolio volatility.
  5. do not purchase bonds or other fixed return investments. I would rather be an “owner” than a “lender”. Should interest rates ever return to 1980 – 1981 levels, however, I would revisit the possibility of investing in such instruments.
  6. I abhor paying unnecessary fees, and therefore, do not invest via mutual funds or ETFs (with the exception of a nominal amount held in an ISHARES Global Energy ETF).
  7. separate all investments from protection. What I mean by this is that I will not own any Universal Life Insurance policies where insurance and investments are combined into one product.

FFJ Portfolio Composition

The following link takes you to a spreadsheet which lists the investments held in the FFJ Portfolio as at December 31, 2016.

FFJ Portfolio Dec 31 2016

 

As previously noted, this portfolio solely reflects holdings held in various non-registered accounts. As a result, some readers may perceive this portfolio to be poorly diversified. Rest assured our entire portfolio is well diversified. I am just not disclosing the investments held within various Registered Retirement Savings Plans (RRSP), Registered Education Savings Plans (RESP), and Tax Free Savings Accounts (TFSA).

Readers will note there are two lines items for Chevron Corporation (NYSE: CVX). CVX shares are held in two different investment accounts and purchases were made at different times.

In addition, the Bank of Nova Scotia (TSX: BNS) shares are expressed in fractional shares. The reasoning for this is that these shares are still held in an Employee Share Ownership Plan I maintain with my former employer from whom I retired in May 2016. The purchase price of any shares in this account is done to six decimal places; I have arbitrarily rounded the quantity of shares to two decimal places in my spreadsheet.

The reason I hold so few shares in Brookfield Business Partners LP Limited Partnership (TSX: BBU.UN) and Brookfield Property Partners LP (TSX: BPY.UN) is because Brookfield Asset Management Inc. (TSX: BAM.A) spun off these entities. Owners of BAM.A received shares in these newly created entities on a pro-rata basis at the time of spin-off.

I am a Canadian citizen and reside in Canada. As a result, I hold shares in various Canadian listed entities. The challenge I have is that there is a dearth of Canadian listed companies that appeal to me. I have, therefore, invested in US companies despite the following two significant drawbacks.

  1. Foreign exchange conversion issues: It currently requires in excess of $1.32 CDN to acquire $1 USD. This is not a drawback when dividends from US investments are automatically reinvested to acquire new shares. The foreign exchange issue, however, is definitely a concern when I wish to make new acquisitions. Fortunately, several of the US shares held in this portfolio were acquired when our Canadian dollar was much stronger relative to the US dollar.
  2. 15% withholding tax on dividends paid by US listed companies (this withholding tax rate is greater for ADRs).

Final Note

My wife and I currently do not require income generated from the FFJ Portfolio. I am, therefore, automatically reinvesting all dividends. This could change should other investment opportunities arise at a later date.

Disclaimer: I have no knowledge of your circumstances and am not providing individualized advice or recommendations. I encourage you to conduct your own research and due diligence and to consult your financial advisor about your situation.

Disclosure: I am long all stocks reflected in this post.

I wrote this article myself and it expresses my opinions. I am not receiving compensation for it and have no business relationship with any company mentioned.