Are you just getting started investing with $10,000? If so, it pays to know how you will weight the positions in your portfolio. In general, it’s best to rank the safer positions you hold more heavily than the riskier ones – over-weighting those with the highest potential returns often results in higher risk. In this article, I’ll explore how I’d allocate $10,000 across three TSX stocks for growth and income.
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One disclaimer
Before going any further, I should say that neither I nor the Motley Fool recommends holding just three stocks in your personal portfolio. The Motley Fool generally recommends at least 20, and I too think that works as a minimum. If you’re inexperienced, broad diversification via index funds is ideal. With that in mind, here is how I would personally invest a $10,000 chunk of my money across three TSX stocks.
TD Bank: 40%
The Toronto-Dominion Bank (TSX:TD) is one for the “income” category. The stock yields approximately 5% at today’s price, and the company has a long history of dividend increases. TD trades at 10.8 times earnings, making it one of the cheaper North American mega banks. It got cheap because of a $3 billion fine and $430 billion U.S. retail asset cap. The fine was a genuine negative, but it is in the rearview mirror now. The asset cap was a blessing in disguise: it freed up billions of dollars that TD used for a buyback. That buyback is one of the main reasons why TD is outperforming the market this year.
Brookfield: 40%
Brookfield Corp (TSX:BN) is a stock I’d hold for growth. I’d weight it about equally with TD Bank at 40%. Brookfield is one of the bigger positions in my actual portfolio, so I’m putting my money where my mouth is here.
Brookfield’s main claim to fame is its discount to its sum of the parts (SOTP) valuation. Basically, the market value of BN’s assets minus the book value of its debt is less than Brookfield’s market cap. Based on that, the stock appears undervalued. The company is also growing at a pretty rapid pace, with operating income compounding at 14.7% over the last 10 years and 25.5% over the last three. Some of the company’s advantages include a charismatic CEO who is good at raising money, top-tier geographic diversification, and a clever debt structure that allows it to lever up without much of the debt being attributable to the parent company.
Air Canada
Air Canada (TSX:AC) is the riskiest of the three stocks mentioned in this article, which is why I’d allocate just 20% of a $10,000 lump sum to it. However, it also has the potential for superior returns. The company trades at just five times last year’s earnings. The reason the stock is so cheap is because it has massive capital expenditures coming up, and because people are worried about Donald Trump’s tariff shenanigans killing Canada-U.S. travel. The “Trump risk” is a real one, but the concerns about Air Canada’s CAPEX are overblown: airplanes have several-decades-long service lives, so it is likely that the CAPEX binge will end on schedule. I think Air Canada will work out long term.
