Q: What Is The Premium Membership?

Last update on Feb. 10, 2014.

High horsepower

More horsepower: Premium portfolios are like cars with higher horsepower. You can potentially go where you want faster, but it's also riskier.


I've received quite a few emails asking me about the premium membership. In this post, I'll explain the difference between the regular and premium memberships.

Regular vs. Premium Portfolios

Whereas regular members have access to regular model portfolios and other tools, premium members have access to everything regulars have, plus premium model portfolios. Let me explain the differences between the two types of portfolios.

Regular portfolios mainly consist of ETFs. Because each ETF invests in hundreds or even thousands of different financial assets, anyone who invests according to these model portfolios becomes highly diversified. This means that significant movements in individual stocks or bonds, whether good or bad, has very little effect on the overall portfolio. This makes regular portfolios less risky.

Premium portfolios on the other hand, consist of individual stocks. This means that significant news to even just one of the stocks in the portfolio, will have significant impact on the overall portfolio.

With both types of portfolios, the goal is the same: achieve better risk adjusted return than mutual funds (i.e. achieve better returns in the same risk category). However, they go about it different ways.

Regular portfolios are designed to achieve better performance by cutting down on costs. Whereas many stock mutual funds in Canada charge 2.5% per year, the average ETF in a regular portfolio charge roughly 0.3%. The difference in fees show up in their respective performances, with ETFs historically outperforming most mutual funds in its class. I expect that to continue.

Premium portfolios on the other hand, try to achieve higher returns than mutual funds or even regular portfolios, by investing in a select number of individual stocks that aim to 'beat the market' (i.e. achieve higher returns than the overall market).

Investment Philosophy

Let me explain for a minute how I determine which stocks go into the premium portfolios.

At my very core, I'm a  value investor.  In short, I think about the kinds of return I would probably get if I held the stock forever, I choose the stock if I'm happy with the returns.

In the course of analyzing each stock, I have found myself frequently choosing quality companies currently facing headwinds. By quality companies, I mean companies that I believe will rapidly grow each dollar of shareholder's money, as they've often done in the past.

Normally, quality comapnies are expensive, and investing in expensive companies generate low returns in the long run. However, quality companies sometimes become cheap when they face headwinds in the form of competition, the economy, and others. As of the time of this writing, premium portfolios are full of such quality companies that have been temporarily knocked down.

Given my investment philosophy, it's no surprise that I choose each stock with the intention of leaving it in the portfolio for a long time. Even so, the premium portfolios change more frequently than regular portfolios.

Individual stocks move up and down quite dramatically at times, so stocks that have been cheap in the past can suddenly become expensive. Premium portfolios change as I kick out expenive stock and add cheap ones. On average, I expect the portfolios to change every 3-6 months or so.

Who Should Sign Up For The Premium Portfolio

Because premium portfolios consist of individual stocks, they are much more riskier than regular portfolios. This brings me to a point I'd like to emphasize.

Unless you really know what you're doing, I strongly recommend signing up for the regular membership instead.

How do you know that you know what you're doing? Let me ask you two questions.

1. Do you know what it feels like to go through a 'bear market' and see your portfolio's value fall day after day? A bear market means a period when you see stocks fall at least 20% from its peak. Many people think they they have high risk tolerance, but I find that they often don't know for certain until a bear market hits.

2. You may want to make your portfolio less risky by adding some bonds to it. Are you comfortable allocating the right amount by yourself?  

If you said no to either of these questions, I recommend that you stick to regular portfolios. There's very little hand holding with regards to implementing and guiding you through the premium portfolios, and you should be comfortable with that.

In addition, I believe you should have at least $40,000 to invest for the premium portfolios to be worthwhile. The premium membership costs $150 every 3 months, which translates to $600 a year. With $40,000, the fees represent1.5% of your assets. And then you have to factor in costs incurred for trading individual stocks on your brokerage account. This is all a fair bit more expensive than the regular membership.

What To Expect With A Premium Membership

If you still decide that you're interested in premium portfolios, let me set some expectations right off the bat.

Even though I've been successful in the past, I in no way guarantees success for the future. For the premium portfolios to be worth your money, they'll have to outperform the market by at least 2 or 3% each year, depending on the size of your portfolio.

For the record, that's a lot.

The premium portfolios can underperform especially in the short run. Sometimes, the underperformance can be quite drastic.

As an example, have a look at my experience investing in First Solar. Just 3 months after I invested in the stock, it lost half of its value. Eventually, the stock proved its worth, but you would have had to put a lot of faith in me to hold it through thick and thin.

As of the time of this writing, the premium portfolio has underperformed the overall stock market since inception. In the long run (3+ years), I expect the portfolio will perform well. After all, I invest own money according to one of these portfolios. However, short term underperformance will occur regularly.

Part of this is because I tend to invest stocks like First Solar, which people don't like for one reason or another. The markets are a voting machine in the short run, and I can't control or predict what other people think.

More Questions?

I hope that answers your question about the premium membership. If you have any further questions, please leave a comment or email me at info@moneygeek.ca. I will edit and add to this post if I receive more relevant questions regarding the premium membership.

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