When the TSX Index has been so volatile, it can be incredibly difficult to know how to invest in the market. I will give you a little breakdown of how I would go about putting $5,000 to work on the stock market, today.
Before investing, there are a few questions I like to ask myself.
Can I afford to invest?
First, can I afford to invest $5,000? It is a good idea to look at your personal balance sheet and make sure that you can afford to lock your money into an investment for a long period. Unless you’re an expert, short-term trading rarely makes money.
Investing with a long time horizon (five to 10 years) is generally, your best way to consistently make significant returns on your capital.
What TSX stocks work for my life right now?
Second, what kind of stocks work for me? If you are younger, you may be able to take on extra risk and buy a higher valued (and riskier) technology growth stock. If you are approaching retirement, you may be more inclined to focus on solid, well-capitalized income stocks. I like to diversify my portfolio with a little of both.
Is now the right time to invest?
Third, is now the right time? The TSX has run up significantly in May. The pandemic and economy still have a lot of uncertainty that could cause the TSX to drop again. Rather than invest all the money at once, it may be good idea to take a “thirds approach” and slowly build a position a third at a time. If the TSX were to suddenly drop, you would still have some capital to dollar cost average down your overall position.
Given this, here are my three TSX stocks, which I would deploy $5,000 into.
Income, growth, and value
I would first start by putting $2,000 into Brookfield Infrastructure. This TSX stock is one of the largest investors in large scale infrastructure assets (pipelines, electric transmission, data infrastructure). Nearly 95% of its cash flow is contracted or regulated, so even in the pandemic environment, its 4.6% dividend is safe.
The company is well capitalized and has a great management team who started making some strategic purchases of publicly-traded infrastructure stocks in March. I reckon this could lead to some accretive deals and acquisitions further down the road.
Overall, management targets a total annual return of 12% to 15%, which is very attractive for a utility-like company. The company is still cheap in my opinion, and it is a great stock to get value, income, and growth, all-in-one.
This TSX stock has strong momentum
I would next put $2,000 to work in Calian. Despite the pandemic, it is a TSX stock that has had a phenomenal year. Calian provides a variety of vital services and products in technology, health, learning, and IT. Over the years, the company has focused on aggressive growth and it is now paying off.
During the pandemic, Calian has seen very strong demand for its crisis management, health, cyber-security, and wireless products. It just announced a number of contract wins and the business all around is in top shape — not to mention that it pays a decent 2% dividend.
Gold for a little safety
Finally, I would put $1,000 into Equinox Gold (TSX:EQX). While I don’t suggest owning gold stocks forever, now is a good time to have some gold exposure. Central banks are pumping money into the markets.
Generally, when this happens, it is good to have some gold exposure. Gold is thought to be a good holder of value, so in volatile markets, it is considered a safety play.
Equinox is an interesting TSX stock because it just merged with Lea Gold to become a much larger, diversified mining operation. The merger should accrete a number of operational efficiencies. With gold sitting about $1,700, Equinox has the potential to produce some really solid results in 2020.
Equinox should also get a valuation re-rating now that it is considered a mid-cap gold player. Once the company proves itself, there could be a significant increase in institutional and index demand for this TSX stock.