Every Wednesday, we publish our “Investor Toolkit” series on TSI Network. Whether you’re a beginning or experienced investor, these weekly updates are designed to give you specific investment advice. Each Investor Toolkit update gives you a fundamental piece of strategy, including stock trading advice, and shows you how you can put it into practice right away.
Today’s tip: “Frequent portfolio turnover is a drain on your profits, so most of your investments should be ones you want to hold on to indefinitely.”
Investors often wonder how often they should sell investments they own and buy new ones. Our answer: as rarely as possible. That’s because portfolio turnover cuts into your profit.
Every time you buy and sell a stock you face three costs:
Brokerage commissions. Every transaction involves brokerage commissions or similar costs, even if these costs are hidden or built into the price you pay or receive.
Losses to the bid-ask spread. If you want to carry out a transaction right away, you have to accept the highest available ‘bid’, or pay the lowest ‘offer’. You can enter your own bid or offer. But this means you have to wait for another investor who is willing to do business at your price. Meanwhile, prices could move against you.
Taxes. If you sell at a profit in your taxable account (outside your RRSP), you usually have to pay capital gains taxes.
Finding a financial advisor you can trust
Successful retirement planning begins with faith in your investment plans. Many investors say that finding an advisor they can trust is one of their biggest problems. Too often, they’ve had advisors who apply the wrong rules to their investments, frequently for reasons of self-interest.
Many of our portfolio clients tell us they chose us to manage their investments because they feel a deep sense of trust in our investment capabilities. But they also feel an extra sense of trust due to the way we set up the business, to eliminate conflicts of interest, which ensures that our clients get our unbiased recommendations with no fear of hidden costs. This sets us apart from most investment services: you can find out more without any obligation.
If you hire us to manage your investments, we tailor your portfolio to your own unique situation—your specific goals, your temperament, your financial situation. We work for your convenience, not ours.
You are in very secure hands. We have an outstanding team of experts. They contribute an enormous amount of time and research to our Successful Investor Wealth Management service. But I personally approve every transaction in every portfolio. If you’d like to know more, call us toll free at 1-888-292-0296, or drop us an email. Click here to learn more about Successful Investor portfolio management services.
Turnover of 25% or less per year is benchmark for many successful investors
Here is how you measure your portfolio turnover. First, add up the value of all investments you bought during the year, and all investments you sold. Next, add the beginning and year-end values of your investment portfolio. Divide the first number by the second.
Example: You sold shares and exchange-traded funds worth $20,000. You held on to $3,000 to pay capital-gains taxes, and bought shares and ETFs worth $17,000. Total, $37,000.
Your portfolio is worth $50,000 at the beginning of the year and $57,000 at year’s end, for a total of $107,000.
The next step is to divide $37,000 by $107,000. The result is 34.6%. That means that you replaced an average of 34.6% of your portfolio during the year. That’s on the high side. Many successful investors have portfolio turnover of 25% a year or less.
Our investment advice: Cut turnover and raise your profit. It pays to seek out stocks that you might want to hold on to indefinitely. You’ll change your mind on some of them, of course. But you’ll hold others for decades, and these will give you your biggest profits.
Note: Once we have solved a temporary technical problem, we will release our new Special Report on retirement within the next few days.
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The contents of this web site and our publications are based upon sources of information believed to be reliable, but no warranty or representation, expressed or implied, is given as to their accuracy or completeness. Any opinion reflects the Successful Investor’s judgment at the date of publication and neither the Successful Investor, nor any of its affiliated companies, nor any of their officers, directors or employees, accepts any responsibility in respect of the information or recommendations contained in the publications or on this web site. Moreover, the information or recommendations are subject to change without notice.
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