Those who may be concerned about too much concentration risk in their portfolio have a number of options available to them to manage this risk today. In decades past, the primary tool used by many investors to gain true portfolio diversification was the mutual fund. Such funds were typically sold to retail investor by large banks or financial institutions.
They typically carried a management expense ratio (MER) of around 2%, a fee which was often previously overlooked. The rise of Exchange Traded Funds (ETFs) has changed the game entirely for investors looking for such diversification. ETFs such as the iShares TSX 60 ETF (TSX:XIU) provide investors with broad based exposure to the highest quality Canadian stocks with a rock bottom MER.
This ETF has traditionally provided investors with a long term return of around 6-7% per year, making this ETF a solid holding for those with an investment time horizon longer than five years. The income streams provided by this ETF are solid and do provide a reasonable yield for those looking for cash flow heading into retirement.
This is one of those ETFs that is best held in a registered account for the long term to allow for tax free growth and income down the road. Of course, with markets now in what I would call “overbought” territory, dollar cost averaging one’s way into this position may be the best course of action at this point in time.
Invest wisely, my friends.
