Ask Globe Investor: I’m in my 30s and I own about $300,000 worth of Shopify Inc. shares, which I received as part of my compensation before I left the company in 2019. The shares have an unrealized capital gain of $210,000 and account for nearly 30 per cent of my portfolio, which is worth slightly more than $1-million.
First, having 30 per cent of your portfolio in a single stock is better than 50 per cent, but it’s still way too high for proper diversification. As a rough rule of thumb, I aim to allocate a maximum of about 5 per cent to each individual stock, but I allow some wiggle room for companies on the conservative end of the spectrum. For example, the largest holding in my personal portfolio is Fortis Inc., with a weighting of about 7 per cent.
Third, although nobody likes paying taxes, keep in mind that capital gains qualify for a significant tax reduction relative to other sources of income. Specifically, only half of capital gains are added to your taxable income, which means – for someone in British Columbia earning $130,000 – the effective marginal tax rate on capital gains is 20.35 per cent. The effective capital gains tax rate increases in small increments as income rises, topping out at 26.