Building a profitable and stable portfolio + MORE Jun 26th

Key measure of threat has eased

Any financial planner will tell you that asset allocation—the mix of stocks and bonds in your portfolio—is one of the most important decisions an investor can make. Your asset mix should be appropriate to your goals and your tolerance for risk. But what if those factors change over time?
The conventional wisdom suggests you should make your portfolio more conservative as you get older, lowering your allocation to riskier stocks and replacing them with safer bonds. You’ve probably heard the rule of thumb that says your allocation to bonds should roughly equal your age—for example, a 30-year-old might hold 30% of her portfolio in bonds, while a 60-year-old would double that to 60%.
This is the key idea behind target date funds, an increasingly popular option in employer-sponsored plans, such as defined contribution pensions and group RRSPs. Target date funds get gradually more conservative as you approach your retirement date. If you plan to retire in two decades, for example, you might choose a fund with a target date of 2035…

Investors often fixate on the latest news and hot stocks popping up in investing media. They demand to know which stocks or sectors should they should invest in next. When they do get an answer, they are often steered towards to stocks or sectors that have been trending recently, but often these only perform for the short term.
While short term momentum has shown some success indicating future performance, momentum style investing can be extremely volatile and exhibits high turnover. In simple terms: it’s not suitable for everyone. For investors particularly concerned with volatility and turnover, chasing what is “hot” is probably an inappropriate investment philosophy. Instead, focusing on more stable while profitable stocks is likely a more suitable choice.
Here is one equity strategy with lower volatility while producing high profits.
The criteria
Using Morningstar CPMS, which comprises of about 98% of the investible market cap of stocks in Canada, I screened for equities with the following characteristics:

Low standard deviation of the stock’s return for the last 90 days
Low standard deviation of stock’s return for the last year
High return on equity
Market cap of at least $500 million

The results
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The Problem
Diane, a 37-year-old web designer in Ottawa, does all of her family’s finances. When she married her husband Paul, 50, an x-ray technologist, three years ago, she amalgamated their finances to one financial institution and paid off all their debt. Right now, Diane has $142,000 sitting in RRSPs and TFSAs that she is ready to invest. “We held a lot of high-fee mutual funds before this that I bit the bullet on and paid the deferred sales charge (DSC) on to get out of,” says Diane. “It cost me $2,901 in fees, but I wanted to start with a fresh slate.”
Diane is a fairly conservative investor and would like to convert her cash to the couch potato portfolio, but she hesitates. “I know market timing isn’t something you’re supposed to do, but with markets at their highs now I hesitate to put my money into couch potato ETFs at this time. I’m wondering if there’s a better way to do this.”
The couple is also trying to catch up on their RRSP contribution room. Paul still has about $120,000 in back contribution room available to him and they are planning to put away $30,000 a year for the next four years to use it up…