Friday, January 6, 2017

Portfolio anchored by mutual funds may outperform an index ETF one

I have followed index investing for years. I was a bit of a believer at one point. Then I noticed some of my pure stock plays were blowing away my index investments. Slowly I moved away from the index model.

Today, my own portfolio is a hodge podge of stocks, ETFs and mutual funds. I have a reason for investing in all the stuff I own but I must confess all the reasons are not good ones. There are a number of investments I hold that I wish I had never encountered. But even carrying those dogs, my portfolio is in the lead against some index-based benchmark portfolios.

If you are asking, what is your portfolio leading? The answer is the test or research portfolios I created using software available to users of WebBroker. I moved some of these practice portfolios to the trash at the start of the year because they were performing so poorly. If I had a portfolio in real life that was delivering so little, I would liquidate it and move on.

Based on last year's performance, I created two new portfolios reflecting my current feelings when it comes to portfolios that operate in automatic mode. One is based on a balanced portfolio created with TD e-funds and recommended by a financial expert with a very popular blog. The other contains just four holdings, two mutual funds and two ETFs. For a more detailed rundown on these two approaches to investing click the following link: Running a portfolio in auto mode.

Here is the surprise: the mutual fund anchored portfolio is ahead of the balanced ETF portfolio by thousands of dollars. Of course, this will probably change, but it does give me pause.

One final note: I tried to simplify this approach even more and I launched one more test fund. This one was based on one and only one ETF, a complete porfolio in itself, a fund of funds. My first fund of funds came in last, so I tried another. It, too, brought up the rear.


Sunday, January 1, 2017

Running a portfolio in auto mode

Last January I built ten portfolios following the index investing advice I found on the Net. The winner was not one of the ten but was actually my own ragtag portfolio. My personal retirement portfolio produced about 19.65% in 2016. The handsome dividend income it paid will cover my 2017 withdrawals which I must make in order to pay my bills in retirement. My profits from buying and selling Norbord stock were icing on the financial cake.

Still, I keep thinking that as I get older I might prefer a simpler solution. My mess of bank and insurance stocks, REITs and ETFs based on REITs plus much, much more may have done well but it wasn't an elegant solution to investing in retirement. And the small amount of bonds in my portfolio almost guarantees lots of volatility. Do I want to be riding a financial roller coaster in retirement?

I'm tossing the worse performing test portfolios, they soon will be history, and I'm adding two new portfolios today. One is based on a balanced portfolio posted by a well respected expert. It is a balanced approach composed of three Vanguard ETFs:

  • 40% VAB (a Canadian bond index ETF)
  • 20% VCN (a Canadian all cap index ETF)
  • 40% VXC (an all-world ex-Canada index ETF)

The other new portfolio is a mix of two monthly income mutual funds and two income producing ETFs:

  • 55% TDB3085 D-Series fund
  • 20% TDB3086 D-Series US fund
  • 12.5% ZRE (Bank of Montreal ETF)
  • 12.5% XUT (iShares utilities ETF)

I remove about 3.5% annually from my retirement portfolio to cover my living expenses. Neither of these two portfolios provide enough dividend income to cover this expense. They both have yields in the 2% range. If I actually had such a portfolio, I'd been selling a small number of shares and/or units each January.

How did you fare last year? It was a fine year to be in the market for most Canadians, unless you picked some real dogs, which is always possible. Are you smiling as we enter 2017?

With the arrival of 2017, I'm building up my cash reserves. I fear Donald Trump plus the markets are at all-time highs. I believe the markets are ripe for a correction. I want to be ready to buy. I want some cash to move from the sidelines back into the game. (Added the following in mid-November. Here is proof that trying to time the market is a mug's game. The index investors who stayed the course, like the well known creator of the Couch Potato Portfolios, demolished me this year. I am hanging my head in shame. I knew better.)

And I'm still examining my practice portfolios. I'm still looking for clues on how to build the best passive portfolio for me in retirement. I have an idea or two. If my heart doesn't take me out of the game in 2017, I may be to convert my investment ideas into an actual portfolio. It would take a lot of guts and confidence but I may be forced to do it by health issues alone.

Thursday, December 8, 2016

Is Index Investing Really the Best Answer?

I've been badly burned investment-wise by financial advisers. I didn't give a lot to the pros, thankfully, but the percentage of money they lost was amazing and frightening. This is not to say all financial advisers are poor; they are not. Nor are the ones who are wrong today necessarily going to be the ones who are wrong tomorrow.

All that said, among the best bets in the investing arena is the TD Monthly Income fund. The minimum investment in a hundred bucks and the minimum you must add at one time is the same. It is an easy fund to own and in which to invest. (The Canadian one has a proven track record. I'm not as enamored with the U.S. based version.)

At one time the TD Monthly Income fund held only Canadian investments but today it has about six percent in the States and another two percent in Latin America. I'm sure the broadening of the fund's investment vision to include a little from outside Canada is a good move.

At the beginning of the year I created ten educational portfolios using TD supplied software. I wanted to track how various investment theories performed in real life. And I wanted to know if I would be better off simply putting my money into some of the popular index-fund-based portfolios pushed by some very bright people.

It is now almost a year since I started my investigation. At this point, my personal portfolio is the clear winner. I hold a lucky mix of financial stocks, REITS, ETFs, mutual funds. I've made some poor decisions, which I regret, but my portfolio is still quite a way into double digit growth for 2016 and that is after removing a big chunk of money in order to live in retirement.

The red line on the graph to the left shows how one assertive portfolio based on index investing is performing this year (2016).

The green line shows how a mix of two TD Monthly Income funds, both D-series, and a couple of ETFs representing REITs and utilities, performed.

My personal portfolio may hold the top position today, comfortably above the green line, but it has not always been that way. It has been, I believe, the most volatile of the three approaches this year. For this reason, I look at the two lines on the graph and wonder if either will prove to be a better approach to investing in retirement. Only time will tell.

And speaking of time, a year is not enough time to earn bragging rights. For this reason, I am not going to go into any detail as to the exact make up of any of the portfolios. After two full years have elapsed I am going to take a long, detailed look at my test portfolios and reveal my findings then.

At the moment it appears an index portfolio is not a bad place to park one's money for awhile but don't make the mistake of parking your brain at the same time. Stay alert. Keep thinking. You may find a better way to invest your nest egg --  like a TD Monthly Income fund.

Friday, November 11, 2016

iShares REM: Reverse Split

I was surprised today to see that my Rem shares are now worth more than $40 (US). The last time I looked those shares could be bought for something in the neighbourhood of $10 (US). Why the jump? A reverse split.

A reverse split of 1-for-4 took effect before the market opened this past November 7, 2016. Each REM share was converted to one quarter of a (New) share in the popular iShares Mortgage Real Estate Capped ETF. In other words, if you owned 800 old shares, you only own 200 new shares today.

Why the reverse split? I have no idea but with the new president-elect Donald Trump led government in the States, an increase in interest rates may be in the offing. If so, an ETF like REM, with its high 13%-plus dividend yield, will come under downward pressure. The new value gives REM room to fall. (No matter who was elected, rates will go up at some point in the future. Of that, there is no doubt.)

If REM rallies next week, I may sell. When the dust settles, after the inauguration in early 2017, I may buy back in if the price is right.

Monday, October 24, 2016

Long on D.UN

I took a long position when it comes to Dream Office REIT. That means I own the units. Yes, units. Not shares. Dream Office is a trust and not a corporation. And to be totally accurate, D.UN pays monthly distributions and not dividends. All that said, I often say I own shares in D.UN and enjoy its generous dividend.

But whether I say units or shares, or enjoy the monthly distributions or dividends in my retirement, I am living on the income and I am living well.

Have I lost money on D.UN? Yes. It has been a nasty ride and yet it has been a comfortable ride and I am staying on board. The bumpy ride only delivers a truly damaging jolt when jumping ship and selling the stock, I mean units.

D.UN is selling today for $17.02 and delivering $1.50 a year in distributions. That's a yield of 8.8%. That's good. But my average cost in my TFSA portfolio is $20.52. My yield calculated on my original investment is 7.3%. Not as good as before, but still quite a good yield. (I only need 4% to live, at the very most, that means 3.3% of the income is cycled back into my portfolio to be reinvested.)

So, despite losing a four digit sum, I am O.K. I'm not exactly happy but I am O.K. I'm retired. I need income to live. D.UN is providing that income and the business looks solid today after taking the huge hit to its value some months ago.

I am long and I am staying long. I am not selling my Dream Office REIT investments anytime in the near future. I'm in for the long haul.

I originally became interested in D.UN when it was selling for about $29. I bought a few shares and I have purchased more as the price declined. The yield today is about 5.2% calculated on the oh-so-high value of those original units. I bought D.UN for the income and I need something in excess of 4%. Even my original units still pay their way and earn their position in my portfolio.

Saturday, September 24, 2016

Sold my OSB (Norbord) again

I have now sold my OSB (Norbord) shares for the third time. Twice I dumped them all. I am OSB free at the moment. I think Norbord may have the ability to climb even higher but I worry it will take a bit of a breather. I don't want to be caught holding the stock if a correction should appear while the stock is depressed.

In the past 12 months I have watched my TFSA grow by more than 22.5%. My posted chart does not reflect the more than $2100 removed from the plan in order to pay expenses encountered in retirement.

And I must admit that much of my wonderful return is thanks to one holding, my Norbord position. I can't say it has been easy beating the benchmark. More luck than smarts. I also have a big chunk of my savings in Dream Office REIT and it has had a terrible year. The collapse in the oil price took an awful toll on the value of its Calgary and Western Canada holdings. But D.UN pays a nice dividend which looks to be relatively secure now and so I hold on and enjoy my monthly payments.

If OSB should drop down below $31, I may consider buying in again. I believe it will have a pop in the dividend in the future. Because of this, it would not be the worst stock to get stuck holding.

Friday, September 2, 2016

Dream Office REIT

Dream Office REIT (D.UN) has had the stuffing kicked out of it. The collapse in the price of oil and the subsequent disintegration of the Calgary real estate market took a big toll on D.UN. And I have taken a big hit as well.

So, what to do. I am going to do what I have done so often in the past. I'm going to hang in there. But, I may make one change in my approach. I may try some day trading of D.UN as I have done with Norbord (OSB).

Because I like D.UN, if something goes wrong and I find myself stuck with some shares, I'll just hold. No problem. I'll sell them in the future when the time is right. In the meantime, I will enjoy the dividend.

I'm not sure that the present dividend can be trusted. The recent drop in the value of the REIT units may put the present dividend under pressure. Time will tell.