Weekly Reading Links 11.02.12

Bought MCD and KO

This last week and after a couple of months of careful thought, I’ve made some changes to my RRSP Portfolio. The RRSP (Registered Retirement Savings Plan) is our Canadian equivalent of the 401k. As well as sheltering and deferring taxable income until withdrawn, the RRSP also allows me to invest in U.S. dividend stocks, without being exposed to any foreign income tax on the dividends or proceeds of sale. Also, with the Canadian dollar continuing to be on par or exceeding the U.S. dollar, investing in U.S. stocks is a win win scenario for Canadian investors.

I also assessed the Bond ETF portion of my portfolio, and with the YTM (Yield to Maturity) bordering less than 1.5% and with the potential for further capital loss, it made sense to me to shift a portion of my bond assets into U.S. dividend stocks. Last week I sold 175 shares of Claymore 1-5 Year Laddered Bond Fund (CLF.TSX), and sold another small cap energy company for other reasons – Pengrowth Energy Corp. (PGF.TSX). PGF was the one holding in my portfolio from my early days of investing, and certainly didn’t belong with my other blue-chip dividend payers. With those proceeds I purchased 50 shares of MCD at $86.50, and topped up on my position of Coca Cola (KO), 30 shares at $37 per share.

Short-Term vs. Long-Term Thinking

Many have viewed KO as being currently over-priced, which it may or may not be. A reader on Twitter referred to me to a recent article, Is Coke Being Valued Like a US Treasury? Although a great article, the author went on to write that “The major mispricing in the market right now is that investors are vastly over-paying for security, and they are under-paying for risk.”

The assumption with the article is that future of KO is predictable, and that it will be a lower price in the future. Perhaps that may transpire. However you must consider, that the market is the fair price of a stock, whether you believe it to be or not. What you don’t know is what the future value will be – simple as that. The real perspective is with taking either a short-term or long-term view of investing. In this case MCD and KO will be around longer than I will be, and they are part of a solid foundation for my retirement income, regardless of the stock price in the years to follow. Don’t you think?