Monday, July 25, 2016

Performance of my London Life RRSP raises many questions

Do you have a story concerning saving for retirement and receiving either good or bad advice from an expert? I'd love to hear some stories detailing my readers' experiences: both good and bad. Now, to tell my story.

My London Life RRSP has lost more than half its value over the past 16 years.

I'm puzzled. I invested more than $4000 in a London Life managed RRSP some 16 years ago. Today that investment is worth less than $2000.

According to the inflation calculator posted online by the Bank of Canada, just to keep pace with inflation my investment should be worth $5673.25 today. But it's not. It's only worth $1841.49. I shake my head with puzzlement. How is this possible?

I'm retired. All my RRSPs have now been converted to RRIFs except for one: My London Life RRSP. All my RRSPs are now delivering a tidy income, all but one: My London Life RRSP.

If I had put the original sum in a simple monthly income fund, something like the TD Monthly Income fund (TDB622), I'd have $14,836.97 today. My money would have grown by more than 350% rather than losing more than half its value. And how much risk would I have assumed to achieve such stellar returns? Not much, actually. TDB622 is a relatively low risk investment.

I'm not an investment whiz. But even my self-managed portfolios are easily outperforming my London Life investment. My portfolio is the purple line in the graph posted below. Clearly, I am doing O.K. I am up 15.52% YTD. My London Life RRSP YTD is up 6.9%. I'll grant you that 6.9% isn't all that shabby but I must still ask why an amateur-run, self-directed account is delivering more than double the YTD growth of an investment managed by experts?

Note: Last year was a bear for me. This year's gains are erasing last year's losses.

I'm going to call my contact tomorrow at Navigator Financial Corp, which has connections to London Life Wealth Management. I'm going to ask the following questions. I'll post the answers. Stay tuned.

  1. If my original $4196.71 investment had only grown with inflation, it would now be worth $5673.25. But it's actually only worth $1841.49. How is this possible?
  2.  If I had put the original sum in the TD Monthly Income fund, I'd have $14, 836.97 today. Why didn't London Life match the simple and relatively low risk TD fund?
  3. I've called and I've driven to London Life for in-person talks. Nothing that I have done has improved this investment's growth. What do I have to do to get a little fire burning under this thing? (I say little fire because it is too late for a big fire. Too risky.)
  4. I'm not an investment whiz. But I'm up 15.52% YTD while my London Life RRSP YTD is up only 6.9%. Admittedly, this isn't bad but why is an amateur-run, self-directed account out-performing the London Life experts?
  5. How much annual income could I realize today from this investment?
  6. When can I cash this investment in and get back a minimum of 75% of my original investment? Sadly this 75% figure is calculated on a 16 year old dollar amount and not on the inflation adjusted value.


Called London Life

I called London Life and I had a chat with an advisor. It was not the fellow I asked for. He was in a meeting. The fellow on the other end of the line began talking about risk-free investments. I protested that no investment is risk-free.

To be fair, investments claimed to be risk-free do exist. Risk-free investments return the money originally invested plus accumulated interest. A GIC is considered a risk-free investment. I held GICs in the '70s and during two of those years inflation beat the rate of return. I know what it feels like to hold risk-free investments while watching the buying power of those investments shrink. And, as most of us know, recent historically low interest rates have resulted in GICs failing to keep abreast of inflation.

Admittedly, it is rare but GICs can lose buying power. GICs are not totally free of risk. This is a fact and when a client makes it clear that they do not consider any investment risk-free, a sensitive advisor drops the phrase and moves on.

But a few bad years is not my biggest complaint with GICs. It's the good years. They just are not good enough, at least not for me at my age. As I mentioned, back in the '70s when I started saving for retirement, I put my RRSP money into GICs. If I had continued to do so, I'd have been O.K. If one starts early and contributes regularly and generously, the GIC approach can work. But there were years that I didn't have the money on hand to make the generous contributions necessary. After decades of saving, it was clear that I was not going to have enough cash on hand at retirement. My safe, no-risk approach was going to guarantee failure.

At this point, I'd like to refer you to an article on the CPA (Chartered Professional Accountants of Canada) Website. It states that historically GICs have bested inflation by about 2.92% annually. That's not bad and, when teamed with a generous annual RRSP contribution, it is easy to see how this approach could work.

But it is not just the generous contributions that make the GIC approach work. It takes time to allow compound interest to work its magic. One needs to save a lot, save often and do so over a long period of time: decades. My London Life contribution was neither generous in size nor made early in life. I was less than nine years from retirement and I my retirement nest egg needed to grow. I needed to take on some risk.

I cannot fault London Life for making a risky bet for me but I can find fault with the chosen fund. I believe it was a fund that London Life eventually dropped from their line-up. It was a certified financial dog. What puzzles me is why after making a very poor decision at the start, my London Life investments did not recover smartly. Why did my investment not rebound from the initial early financial pounding?

I have been retired since January 2009. My wife and I need money to live and we have to live with risk. We have little choice. If I put money into GICs, I would watch my principal shrink every year. The RIF withdrawal rules would see to that.

If my wife and I put our money into an annuity paying a fixed amount each year, it is easy to see inflation shrinking the buying power of that payment by half or more during our lifetimes. During the first 30 years of my life, inflation ran at about 4% annually. Do the math. That rate if inflation is a killer when it comes to buying power.

I would be willing to look at a creative proposal when it comes to managing my retirement funds. I've talked with a number of financial advisors. Not a one has put anything down on paper. Not a one has addressed my concerns. I would not be surprised to learn that a mix of financial vehicles could meet our needs while minimizing the risks but as long as the financial advisors at banks and insurance companies come across as cousins to car salesmen rather than as experts in a complex financial mine field, I'll muddle along on my own, thank you very much.

The Last Word

I had a chat with Jim Collins, a partner at Navigator Financial Corp. He was gracious, understanding and talked like an adult. He didn't flinch when it came to discussing the problems with my account. For once, no mealy mouth phrasing. He was willing to call a spade a spade and, even better, to call a loss a loss. I feel confident that Mr. Collins is going to try to wrap up this failed investment account in a manner acceptable to all. I wish Mr. Collins good-luck.

Wednesday, July 13, 2016

These funds and ETFs have captured my interest

I am on the trail of the Holy Grail. This is a somewhat well worn path blazed by experts in investing like the fellow behind the Canadian Couch Potato blog and others of his ilk. I am following, but not in the footsteps, of some very knowledgeable investors. I am veering off the path at my peril.

That said, my portfolio is not doing badly but it does not follow the index approach as closely as it should. I have gotten burned once but that was a third degree financial burn. I was caught with minimal exposure to the American market when it soared to new heights. If I'd been following the advise of the experts, this would not have happened.

That said, I have this nagging feeling in my gut that a portfolio of index funds and index ETFs is not for me. To that end, I have been following imaginary portfolios, often created to mimic those advised by others. And these portfolios have not, for the most part, impressed me when it comes to results. They all come with impressive back stories but  . . .

Today I am taking care of grandchildren and so all I am going to do is post a graph of the investments that have caught my interest: TDB622, TDB902, CBD, XRE and XUT. More on this at a future date.

Click on the image to see a large, easy to read, graph.

Tuesday, July 5, 2016

The search for the "easy" retirement portfolio

To read, click on image to enlarge.

 Both my wife and I are retired. I have a defined benefit pension. My wife doesn't. Because I took a buyout and retired early, I was forced to accept about a 25 percent cut in my pension. I also had to file for my CPP early, as did my wife. We were desperate, we needed that money to live, and for that reason we both took double digits cuts to our CPPs.

Thankfully, we were both savers and have lived our lives relatively frugally. We both had RRSPs to supplement our retirement income. We bought banks stocks, REITs, and some oil patch companies that paid nice dividends. We also bought some ETFs and three mutual funds.

Today, our portfolio is a real dog's breakfast. When we retired, I had an allocation plan based on a mix of equity and bond ETFs. It was nicely diversified with Canadian, American and International investments. First, I lost confidence in bonds and dumped our holdings. Then the Yanks looked like they might renege on their country's debts and I sold off the bulk of my American investments. The remaining portfolio is but a shadow of its former diversified self.

I was proud of our portfolio when I retired but today I am embarrassed. I've got to do better. I've got to work out an allocation and adhere to it. To that end I set up ten research portfolios using the portfolio manager software supplied by TD Waterhouse. It comes as part of the self-directed investor package.

Today my dog's breakfast portfolio is up Year To Date (YTD) 5.93%. If it keeps this pace for the remainder of the year, I will be up 11.63% and that's after removing 4.4% of the value of our portfolio at retirement to cover living expenses. We need that annual withdrawal. The money from our portfolio is what keeps the wolf away from our door.

I must confess that I have already scrapped one of the portfolio approaches I was investigating. It was created using screener software designed to pick stocks based on your personal investment goals. The pure stock portfolio that resulted was way too volatile. There is simply no way I could own such a wild beast.

The four portfolios in which I have the most interest are the following:

  • One: composed of just three ETFs: CBD, XRE and XUT
  • Two: composed of just two TD D-series funds: TDB3085, TDB3086
  • Three: composed of just four TD e-funds: TDB909, TDB900, TDB911, TDB902
  • Four: composed of just three Vanguard ETFs: VAB, VNC, VXC

  • The first portfolio is mostly a fund of funds, also called a wrap, with its yield supplemented by a couple of traditional, income paying ETFs.
  • The second portfolio is a mix of two TD D-series monthly income funds. One is Canadian and the other U.S. The TD D-series funds have slightly lower MERs than the comparable non-D-series funds.
  • The third and fourth porfolios are based on assertive portfolios found on the Couch Potato Website. The fellow behind the Couch Potato style of investing is quite knowledgeable. I am quite in awe of this chap. He knows his stuff. Anyone looking at running their own portfolio would be wise to visit his site and read his posts.

And now, without further ado, here is how the four portfolios mentioned are doing half way through the year. And remember, I took a big chunk of money out of each portfolio, an amount in the five digits, to meet living expenses.

  1. Portfolio One is up 5.1%.
  2. Portfolio Two is up almost 1.0%.
  3. Portfolio Three is down by 3.1%.
  4. Portfolio Four is down almost 2%.

It is still too early to say much about the results but there are some interesting things going on. One, the fund-of-funds anchored portfolio is doing quite nicely. CBN, iShares Balanced Income CorePortfolio Index ETF, is an entire portfolio in one ETF. Lots of experts in the financial investment community mock the fund of funds approach and from some back testing I've done, I can understand their doubts about the strategy. Yet, it, with a little help, is besting the other test portfolios.

Two, the portfolio based on two mutual funds is in the black while the ETF based portfolio is in the red. There seems to be almost universal agreement among savvy investment advisors that one should never pay the high fees charged by mutual funds. The high MERs are portfolio killers, it is said. I have always questioned this as funds like the TD Monthly Income have enviable track records. I have always theorized that one could do a lot worse than simply investing in the TD Monthly Income fund. It's mix of bonds and equity has been a proven winner with relatively low volatility over the years that I have owned it.

The two assertive Couch Potato portfolios are both in the red. I'm sure some would argue that using assertive portfolios in this inquiry is an error and they'd be right. Assertive portfolios are not designed for the retired. But, and I see it as a big but, my own assertive portfolio, my dog's breakfast composed of almost all equities, is the leader at the moment.

My goal? I want a simple retirement portfolio that is a little on the assertive side, delivers enough in dividends to help me pay my bills, and doesn't suffer from undo volatility. I don't think I'm asking too much.

Six months into this experiment is not enough time to say much. Come back at the start of 2017 and I may post more complete information on my test portfolios. If I feel I have learned enough, I may tell you that I am selling all and reinvesting in my "easy" retirement portfolio.

Saturday, June 18, 2016

Good investment advice is often boilerplate.

Good investment advice is easy to come by. It is everywhere. My local paper often has a tip or two or carries an article on a local investment wizard. The Internet is awash with investment blogs. And all the advice is good. It must be as it so often is the same advice whether it is in the daily newspaper or on the Web. If everyone agrees, it must be right, right?

Not really. Good, dead-on accurate, investment advice is actually tough to come by. There are lots of general rules, such as keep your costs low. Everyone seems to agree these are good rules to follow.

Find enough folk saying the same thing and you can be forgiven for beginning to think that you have discovered the core rules for investing. Just remember: "Rules are made to be broken."

For instance, check out the post by Farnoosh Torabi, a well-known and well-respected personal financial expert. Read her post here: Investing Series. Torabi gives some good advice but it is boilerplate. It is good advice that can be found in numerous spots around the Web. But is it right? Absolutely right? Can you take this advice to the bank, as they say. Torabi writes:

If you want to build an income stream . . . take a look at dividend income investing [using index funds.] . . . How do you choose . . . an index fund . . . Simple. . . . Look for the one with the lowest Management Expense Ratio (MER).

Like I said, boilerplate. It is good advice but it is not the whole story. I wish I could tell you the whole story, but I can't. But I can point out that basing all your decisions on the lowest MER is not necessarily a winning strategy.

For instance, check out the graph below. See how well the TD Monthly Income fund (TDB622) performed compared to a fund I found on one of Torabi's lists. I chose the TD Managed Index Balanced Growth Portfolio-e (TDB852) for this comparison because it seemed to be the closest index fund in her list to TDB622. The fund with the higher MER, TDB622, paid out $20,000 each December as did the Torabi e-fund. But, and it is a big but, TDB622 finished with $114,365.44 more value.

The lesson here is don't let low MERs stop you from checking under the hood. There is more to investing that keeping costs low. There is also trying to ensure that income is high.

Click on image to enlarge. TD Monthly Income is green. e-fund is blue.
I'm going to end this post by confirming that I have put my money, and my wife's money, where my mouth and my blog post is -- we have a fair chunk of our retirement savings in TDB622. At least we did. I believe the new D-series monthly income fund, TDB3085, is actually the old TDB622 but with a lower D-series MER. I switched out of TDB622 and into TDB3085 some months ago.

Like I said, Torabi's advice was good. It just may not have been the whole story. Just like she advised, I chased the lower MER offered by the D-series fund. But I didn't let the still somewhat high fee stop me from investing. I'm betting my monthly income fund will deliver good growth while incurring less volatility. Time will tell if I am right.

Wednesday, June 15, 2016

Dream Office REIT

I like Dream Office REIT despite the fact that the stock has gone down considerably since originally attracting my attention. Luckily I have bought more on the big dips. Because of my recent buys, I'm not doing all that badly on the investment.

Dream Office REIT cut its dividend and the price has tumbled considerably from the highs it had reached a little more than a year ago. Today I feel the dividend is safe and the unit price, I believe, will climb at some point in the future. I don't have a crystal ball.

And what exactly is the yield today? Answer: 8.11%. That's a very nice yield. And if I'm right, and it's safe, that is a yield on which a retired person can do some living or, at least, pay some bills. If D.UN stays depressed, under $19, and I am able to assemble a little cash, for instance selling my shares of Norbord Inc. (OSB), I'm going to buying a little more D.UN.

Remember, I am not an advisor. I am just a simple retired fellow trying to make ends meet. Before buying Dream Office REIT, check with your own financial advisor and get some expert advice.

Monday, May 30, 2016

What are others saying?

Retirement 'Bucket' Portfolios for Vanguard Investors

Christine Benz, Morningstar's director of personal finance, writes in the linked article:

The bucket approach to retirement planning is straightforward and makes intuitive sense. The basic idea, as envisioned by financial-planning guru Harold Evensky, is that a retiree holds a cash component alongside a well-diversified, long-term portfolio consisting of stocks and bonds. Knowing that money for near-term spending needs (one to two years' worth of living expenses) is parked in cash helps the retiree cope with the fluctuations that will inevitably accompany the stock/bond portfolio.

I have stuff to plant, ferns and things, so I will read the Benz article carefully later. But, I am posting this link so that anyone finding this post can continue along without me.

I might add that I am doing the bucket thing to a certain extent already. I try to keep enough cash on hand in my various RIF accounts to keep my books balanced for the coming 24 months. The goal is to prevent being forced to sell equities at an inopportune time simply to meet financial demands.

Update on ongoing portfolio testing

Date: May 30th, 2016

My portfolio is up 8.07% year to date. All I can say is, "Wow!" In the years since my retirement, I have let my portfolio drift farther and farther away from my carefully designed allocation model. That said, my portfolio has performed nicely but it has done so in a manner that does not bode well for the future. I'd like to take not a little money but a little risk off the table. My portfolio has a flying-by-the-seat-of-my-pants feel. Not good even if it is working. Too much luck is in play.

So, at the beginning of the year I embarked on quest, a search for the perfect no-brainer retirement portfolio. I borrowed freely from respected sources and created ten dream portfolios using the portfolio manager software offered by TD WebBroker.

Before I reveal how my test portfolios are performing, I must warn you. This test has only been going since January 1st. That is only five months. That is not enough time to make any firm decisions. The markets are a wild ride and a good test needs to run for years and not just months. That said, the results are interesting and there is one thing that I have learned and I will get to that later. Now, to the YTD results.

  • Couch Potato assertive portfolio based on TD e-series funds . . . . . . . . . . . . . .Up 0.28 %
  • Couch Potato assertive portfolio based on Vanguard ETFs. . . . . . . . . . . . . . . .Up 1.09 %
  • My personal try at a no-brainer portfolio using iShares . . . . . . . . . . . . . . . . . . Up  5.98 %
  • My personal try at a no-brainer portfolio using Purpose ETFs . . . . . . . . . . . . . Up  4.69 %
  • My personal try at a no-brainer portfolio using TD Monthly Inc. Funds D-series .Up  3.89 %
  • My personal try at a no-brainer portfolio using TD e-series funds. . . . . . . . . . . Up 0.54 %
  • Vanguard Capped portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Down 0.32 %
  • My personal try at a no-brainer portfolio using Vanguard funds. . . . . . . . . . . . .Up 0.92 %
  • Vanguard not capped portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Up 1.57 %

I have followed the Couch Potato series for years. The chap who designs these portfolios knows what he is doing. So why have the two assertive Couch Potato portfolio done so poorly? My guess is bad luck. The timing is off. For instance, any U.S. exposure has probably fared poorly so far this year. The market in the States has been lagging the Canadian market for most of the year. These two portfolios will have their day, of that I am sure.

Still, it is interesting that the portfolio based on just two D-series monthly income funds is doing better than the Couch Potato suggestions even though the D-series funds have the burden of higher MERs.

Here is a look at my portfolio mix based on just two D-series monthly income funds.

I will disclose right now that I hold a big chunk of TDB3085 in my personal retirement portfolio. Why? It appears to be the old TD Monthly Income fund (TDB622) but with a lower MER. And I like TDB622. With its mix of stocks and bonds it has much lower risk than many of my investments. TDB622 has been a winner for decades.

Because it is still early in the year and I don't want to make too big a deal out of my so-called test at this early stage, I will only give a detailed breakdown of my best performing test portfolio. My iShares-based attempt.

I think my choice of CBD is self explanatory. It is the iShares balanced income portfolio. It is a one-stop shopping ETF. I've added the REIT exposure and utilities exposure because I have read a lot of articles that said retirees must accept more exposure to both REITs and utilities because of the need for dividend income.

I need to take a five figure amount from my portfolio annually in order to balance my books in retirement. So far the big disappointment has not been the poor overall showing of some of the portfolios but by the dividend yields. I need cash to live and most of these test portfolios are not delivering the income. I'm going to see if I can find a balanced income portfolio that doesn't inflate its yield with return of principle, mix it with some REIT and utilities exposure and pump up my yield while not sacrificing growth. When I have this figured out, I will back test it to the first of the year and compare it to the other portfolios.

Now, to the one thing I have learned. I had a test portfolio based on stocks found using the screener software. This portfolio was the wildest ride of all. During the crash in stock prices early this year, the screener-created portfolio was down in the six figures. If it had been real, I would never have gotten a wink of sleep. Since then it has recovered nicely but the volatility lesson has been learned and noted.

I have deleted the portfolio created with the screener from the test.