Yahoo Finance TFSA Investors: 2 Mistakes That Can Get in the Way of Your Portfolio Hitting $1,000,000
Getting your TFSA to $1,000,000 is a great goal for retirement, and there are many different strategies you can deploy to try and achieve it. However, regardless of the approach you take, you’ll want to avoid some dangerous mistakes that could jeopardize those goals.
Below, I’ll review two of the more costly mistakes that you can make with your portfolio and how you can mitigate the risks.
Relying too heavily on dividend stocks
Dividend stocks can be a great way to add income to your portfolio and should be in any retirement plan. However, there’s a fine line between having them in your portfolio and depending on them too much.
Take, for instance, a stock like AltaGas Ltd (TSX:ALA), which had to slash its payouts earlier this year. The stock was looking like a solid investment for passive income investors, and while it still offers a good payout of around 5.3% per year, it’s nowhere near the high yield seen before the reduction.
Investors relying on its high yield may have been sorely disappointed, and a smaller yield has likely had an adverse impact on those relying on the higher dividend for the long term.
The good news is that AltaGas didn’t ultimately eliminate its dividend entirely, which is always a possibility when it comes to dividend stocks; investors could have minimized their exposure to the stock as the share price kept on declining.
A safer approach could have also meant avoiding exposure to the oil and gas industry entirely, especially given how volatile the industry has been in recent years. Although AltaGas has a strong utility business, its exposure to oil and gas certainly doesn’t help.
When it comes to dividend stocks, investors need to choose carefully, as while many stocks may offer dividends, they don’t all possess the same level of risk.
Being too aggressive and speculative
Another way that investors can put their portfolios at risk is by focusing too much on speculation rather than investing. Canada Goose Holdings Inc (TSX:GOOS)(NYSE:GOOS) has been a great growth stock, but it’s seen a lot of bearish activity, falling more than 15% during the month of August.
Underperforming earnings results have weighed on the stock in recent quarters, as it has failed to get back to the highs it enjoyed earlier in the year.
While it’s still a good growth stock, it underscores just how quickly a stock can fall out of favour with investors. Had the stock been valued at more modest multiples, there would likely be less of a sell-off in its share price.
However, when stocks are trading at very high multiples to earnings and book value, there’s more of a risk that a stock can see a correction take place.
Canada Goose is not a high-risk stock and could still prove to generate good returns for investors, but if investors were to focus more on valuation rather than on hopes of future growth, they would put their portfolios at much less risk.
More reading
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Fool contributor David Jagielski has no position in any of the stocks mentioned. AltaGas is a recommendation of Stock Advisor Canada.
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