Buying Assets from a Hotel in the Canary Islands

As I write this in February I am sitting in the Canary Islands off the coast of Africa enjoying some sun. Ten minutes ago I grabbed a few minutes away from the family and was logged onto the hotel WiFi which was pretty much no better than dial-up. During this brief period I managed to execute some planned trades in my account. For these trades I was not focused on dividend stocks – instead I was diligently executing trades that brought my current asset allocation closer to my target allocation.[ad#tdg-embedded]

I completed three separate transactions, each one with a specific purchase objective in mind. Here is a brief rundown of the three trades that I made:

1. Purchase iShares Canadian SmallCap Index ETF (XCS.to)

Before this trade I did not have any Canadian small-cap exposure in my portfolio. In asset allocation research, the added risk provided from small-cap stocks has been able to enhance returns over the long-term. That was my intention here – to enhance the returns of my portfolio with some additional risk. I still need to add a Canadian value index to my Canadian asset grouping, but since I already have some of that with my pension funds I decided to go the small-cap route first.

2. Purchase Vanguard Value Index ETF (VTV)

This was my second purchase of this ETF in the past year. As above, asset allocation research discusses the importance of having value stock in your portfolio to enhance diversification and returns. The second purchase of this ETF simply takes me closer to my target allocation for the value component of my U.S. holdings. To be honest, I am also glad to be buying this fund while the market is tanking. In 20 years I think this will look like a smart move.

3. Purchase Vanguard Small-Cap Value ETF (VBR)

I already held the iShare S&P SmallCap 600 ETF so why would I want to add another small-cap ETF to my portfolio? The reason is just as above – to add more of a value component to my small-cap holdings. Having both a normal and a value fund helps to enhance diversification in my portfolio. There is added risk with the value fund, but over the long term that risk should be rewarded with additional return.

4. Purchase Vanguard REIT ETF (VNQ)

I include REITs in my portfolio for their diversification benefits and typically non-correlation to the general equity markets. Although this has not been the case recently, over the long term we should see that the REITs and the regualr market assets diverge once again. This purchase was to simply bring my U.S. REIT allocation closer to my target.

Summary

I am sure you can see a pattern to my transactions here. It is all about diversification and ensuring that my asset allocation moves closer in line to my target asset allocation. That is the most important factor for any portfolio, and as I have included in my code I am to hold a core portfolio of index funds that are properly diversified so that I stand the best chance of earning a good return.