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Pattie Lovett-Reid: Grandpa was right! Boring is beautiful when it comes to investing

ANALYSIS: We have a household of near 30-somethings. In other words, we are in a household of millennials— which I've come to learn—is a generation that now outnumber boomers. While the press tends to focus on this group’s high debt levels, underemployment and fear of the market, this isn't one homogeneous group. There are many who are employed, many who are aggressively paying down debt and those that want to start investing.

I've often said—regardless of age—boring is beautiful when it comes to investing. I encourage people to invest in good quality companies, with real earnings that not only pay a dividend, but those that increase their payout consistently over time. I prefer the exciting parts of my life to be other activities, such as sports or entertainment outlets. So preparing a new generation of investors could be a challenge if they choose to invest in exciting stocks over boring ones and may be missing out on real winners.

Headline grabbers like Netflix, Apple, LinkedIn and even Facebook are exciting for millennials to invest in, but may already have the growth potential captured in the stock price. In other words, a millennial-friendly company likely has the opportunity to continue to grow, but a high price to buy into that investment can still mean it is a poor investment option.

Calgary-based Mawer Investment advisor David Fraser believes millennials are making one very big mistake: neglecting due diligence. He would rather millennial investors favour a balanced portfolio approach. It's not okay to put all of your eggs in the tech basket. If you decided to overweight your portfolio in one sector, one company, one country or even one currency, there is too much risk. Mawers team has a maximum weighting for any one company of 6%. Unfortunately, it is not uncommon to find millennials with little experience to hold well over 50% of their portfolio in one or two securities.

Even though millennial investing research from Charles O'Shaughnessy, a portfolio manager at O’Shaugnessy Asset Management concludes a 30-year return for its Millennial Portfolio (comprised of companies like Google, GoPro, Telsa etc) would turn $1M into $5.4M (nominal). Fraser doesn't find the behaviour really relevant or an indicator of future asset performance. Using the average historical return for stocks falling in a similar valuation bucket, O'Shaughnessy's research finds the Grandpa Portfolio (comprised of Kraft, Honeywell, Merck, etc) would grow $1M to $46.2M over 30 years. The difference is staggering.

I'll go back to my original statement—boring is beautiful. Resiliency and consistency are key to a portfolio's growth and as in so many areas of life. Think about how much further we would all be if we had followed the wisdom of older generations. Grandpa knew what he was talking about if we took the time to listen.

As the Chief Financial Commentator for CTV News, Pattie Lovett-Reid gives viewers an informed opinion of the Canadian financial climate. Follow her on Twitter @PattieCTV
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