Investments are needlessly overcomplicated. Far too many investors spread their assets too thin. Managing a massive and complex portfolio is time consuming, especially if investing isn’t your day job.
Instead, most investors would be better off simplifying their portfolios and betting on broad exchange-traded funds (ETFs) to bet on specific themes instead of individual stocks. Here’s how you can construct a three-stock portfolio that strikes the perfect balance between risk and reward.
Technology has outperformed nearly every other sector over the past decade. Investors with exposure to tech stocks are now sitting on dot-com level gains. However, unlike the dot-com bubble, tech giants are remarkably profitable and well established now. This is why investors need exposure to this robust sector.
TD Global Technology Leaders Index ETF (TSX:TEC) could be an ideal bet. That’s because the majority of its assets are concentrated in the U.S.-based tech giants. The two largest holdings are Amazon and Tesla. The ETF’s portfolio also includes underrated tech startups from other countries, such as Poland-based CD Projekt and Israel-based Wix.com.
Since inception in 2019, the ETF is up over 104.9%. This well-diversified ETF offers convenient exposure to innovation-based growth opportunities from across the world.
While the TEC ETF covers growth, it offers little to no dividend yield. A well-rounded portfolio needs an income component, which is why the second pick on this list is iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSX:CDZ).
“Dividend Aristocrats” are stocks that consistently increase their payout year after year. Stocks that can sustain a steady growth rate for five consecutive years find their way into this portfolio.
CDZ’s holdings include energy giants like Keyera and financial service providers like Power Corporation of Canada. In fact, roughly 35% of the portfolio is concentrated in either energy or financials — Canada’s core economic drivers.
CDZ is up 7.3% annually since inception and 47.3% over the past year. This ETF also distributes dividends every month, which makes it an ideal target for investors seeking passive income.
We’ve covered tech growth and steady income, but the perfect portfolio also needs some tangible hard assets. A robust real estate investment trust (REIT) should fill this gap.
My top pick is RioCan REIT (TSX:REI.UN). Not only is it one of the largest landlords in the country, but the company is also expanding into real estate development — American properties and residential units. Over time, RioCan could be one of the most well-diversified REITs on the Canadian market.
At the moment, the REIT trades at 16.3 times earnings and offers a 4.3% dividend yield. It’s an undervalued bet on North America’s most lucrative asset class.
These three stocks could be the perfect combination. Investors can expect steady growth from the tech ETF, recurring income from the dividend ETF, and inflation protection from the REIT. This, in my view, is the ideal long-term portfolio.