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Buy more or exit

Look at your portfolio. Do you have a dozen different stocks with a position weighting of less than one per cent? It’s time for a decision. A tiny position in a portfolio really accomplishes nothing except wastes your time following yet another company. Take a close look. If you do not like the 0.5 per cent stock enough to double it to at least one per cent, then it is time to sell. This decision is easier if you look at the math: Even if that stock triples in a year, it adds only one per cent value to your total portfolio. Many portfolios can move that much in a day. Personally, we have a minimum three per cent rule, so we don’t own more than 30 or so stocks, ever. One does not need more than this to be properly diversified. Small positions? Buy more. Or sell it all.

Plan ahead for your tax-free or tax deferred accounts

Most investors know that compounding is a marvellous thing, and the longer you invest the greater your returns will be. That’s great, but tax-free compounding is even better. If you do not think you are going to have enough money next year for your TFSA and RRSP contributions, starting planning to raise money now, or start looking at your securities positions to see what you could transfer in-kind to these accounts. Keep your long-term positioning and cash needs in mind, of course, but if you have a choice between money in a registered account or non-registered account, it is almost always better to go for the registered account (not always the case though if one is looking at only Canadian dividend income vs. RRSP withdrawals). There is some debate on the effectiveness of RRSPs, as money is taxed eventually. But no one can argue with the flexibility and attractiveness of putting money inside a TFSA. We get very few breaks from the government. Use the best one.

Peter Hodson, CFA, is Founder and Head of Research at 5i Research Inc., an independent investment research network helping do-it-yourself investors reach their investment goals.