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.

Thursday, April 7, 2016

Luck, opportunity and successful investing

I'm retired and doing quite nicely. But, and it is a big but, how much of my solid financial position is simply luck and how much is based on my decision making ability? I bought  a lot of my bank stock when it was in the $20s at the depths of the market crash six or seven years ago. It was a good decision made at an opportune time.

As I think about it, good luck teamed with a great opportunity may be interwoven into the fabric of my investment life. Overall the market has been good since I was born in the latter years of the 1940s. This wasn't always the case. The market has not always been good to investors. The folk who invested in 1928 got burned. I understand it may have taken some of those people some two decades to recover financially. Many would have died before the market fully recovered.

For that reason, I am loath to give out solid advice such as do this because it worked for me. As they say, "Past performance is not an indicator of future growth." Often the word used is results in place of growth but you get the idea.

Last night I stumbled upon a site, Financial Planning Association (FPA), that appears to contain a treasure trove of solid advice when it comes to managing one's finances in retirement. Today I got an e-mail linked to that site. The topic? Risks in retirement. (And yes, I signed up for the e-mail updates. It was not a spam mailing.)

The letter discussed the usual suspects when it comes to investment risk, unforeseen major expenses, etc., but it mentioned one risk that is often ignored. It is the elephant in the room, so to speak: declining cognitive ability in one's senior years.

My retirement approach, which has a complex, personally-developed , Excel spread sheet as a major tool, is in trouble if I'm out of commission for any reason. If I had a stroke and was unable to manage our retirement finances, my wife would have her financial hands full.

Maximizing my wife and my income in retirement may be taking up too large a part of my time. My goal of coming up with a stand alone, self-regulating, income strategy may be of far more importance to a successful retirement strategy than I have been willing to admit.

Sunday, April 3, 2016

Do I make a sacrifice for less volatility?

As is clear from the posted graph, my TFSA (the solid purple line) has outperformed both the S&P/TSX Comp. TR Index (broken blue line) and the S&P 500 TR Index (dotted red line) over recent months. That said, look at the volatility. My portfolio sinks to extreme lows and then soars to dizziness-inducing heights. It has been, and promises to continue to be, a wild ride.

My actual portfolio is the solid purple line.

From the above graph, it is clear my investments made a couple of big dips but almost immediately recovered. When all is said and done, it appears at first glance that after all the drama I have simply returned to the level at which I started. Not true. In late 2015 I made my annual RIF withdrawals. I removed a chunk of cash to cover living expenses in retirement. By simply not losing value, my portfolio is performing adequately.

But, and it is a big but, my portfolio doesn't simply hold its own. The balance is constantly fluctuating up and down. I have confidence my portfolio will perform well in the end but it can be tense. I confess I am bothered more by the volatility than my wife. She has nerves of steel.

I would love to find another approach to investing -- one that generates the dividends needed to live while not suffering the deep dips of my present approach. I ask myself, "Would a portfolio containing just a few index funds or ETFs work just as well but with less volatility?"

Seeking an answer, I created ten phantom portfolios last January 1st (2016). Two were based on the excellent work done by the chap behind the Canadian Couch Potato blog.

The Couch Potato TD e-Series assertive portfolio contains:

  • 25% TD Canadian Bond Index Fund - e (TDB909)
  • 25% TD Canadian Index Fund - e (TDB900)
  • 25%  TD U.S. Index Fund - e (TDB902)
  • 25%  TD International Index Fund - e (TDB911)

The Couch Potato Vanguard  ETFs assertive portfolio contains:

  • 25% Vanguard Canadian Aggregate Bond Index ETF (VAB)
  • 25% Vanguard FTSE Canada All Cap Index ETF (VCN)
  • 50% Vanguard FTSE Canada All Cap Index ETF (VXC)

The last time I compared my portfolio to the Couch Potato approach, my portfolio pulled into the lead and stayed there for years until the American market took off and my portfolio was caught completely off base. With inadequate exposure to the States, it got torched. For that reason, I am not going to allow myself to get too smug about my present winning position. Never diss Couch Potato portfolios. These portfolios have earned the in the investment community for good reason: Over time, they perform well.

As much as I admire the Couch Potato approach, there are other approaches to successful investing that I also find attractive. One of these other approaches is simply sticking money in the TD Monthly Income fund. Over time this fund has done quite well while pumping out a steady stream of monthly payments. Since I began following this fund, the annual yield has dropped but I see this as good. I believe I am seeing less return of principal hidden in the yield.

A few months ago, TD brought out a D-series version of the monthly income fund. I considered the lower MER of a D-fund a clear bonus and made the switch based on my past good experience with TDB622.

I've created a no-brainer ghost portfolio using two D-series monthly income funds:

  • 70% TDB3085 (D-series Canadian monthly income fund)
  • 30% TDB3085 (D-series U.S. monthly income fund)
In the coming weeks I will talk about my other seven ghost portfolios but today I will stop with the three I have mentioned in this post. How have these no-brainer portfolios on automatic performed? Not badly but not as well as my oh-so-messy real portfolio. Since January 1, 2016 the results are as follows:

My portfolio is up 1.4% YTD. It is important to note, in mid-January I withdrew 3.2% to cover annual living expenses. If I hadn't made that withdrawal, my portfolio would be up 4.6% YTD. With the withdrawal amount factored in, not one of the portfolios-on-automatic is in the black. Both of the assertive Couch Potato portfolios plus my D-series ghost portfolio are off the winning pace at this moment. This may change, of course.

There are a few things that must be noted. As I removed a five figure amount from my actual portfolio to cover living expenses, I have removed a similar amount from the value of the ghost portfolios. Doing this introduces a small error. When the market is up, the ghost portfolios benefit. When the market is down, the ghost portfolios suffer a little.

And two, it is too early to make any meaningful judgments. That is why I shied away from giving out any hard numbers or revealing which ghost portfolio is in second place, which is in third, etc. I will wait until the end of the year before revealing all.

At the end of December I will know which ghost portfolios delivered the yield necessary to cover my annual income shortfall. Right now, I know my actual portfolio will get me through the year. Of this, I am certain.

One last note: In mid-December, I will withdraw all the accumulated dividends from my TFSA and ask my wife to do the same. This money will help cover the extra expenses that accompany Christmas. A December TFSA withdrawal increases January TFSA deposit headroom.

Tuesday, March 29, 2016

AHF suspends its dividend

Aston Hill Financial (AHF) has suspended its dividend. Ouch.

I bought some AHF after reading a positive review posted by one of the big Canadian banks. I had an investment that was managed by AHF and it had done quite nicely over the years.

My investment started out as BTH.UN, an ETF from Barclay's, and then its ownership changed and changed again. Eventually it ended up in the AHF stable.

AHF seemed like a good company, my investment had always done well. AHF seemed to know what they were doing. I decided to invest directly in the company. I cashed in my investment managed by AHF and bought some stock in the company itself. Bad move.

AHF climbed briefly and then hit the skids. It is now but a fraction of what it was when I bought my stock. And now, the dividend has been suspended. It had already been cut. Now, the dividend is gone.

Will AHF regain its footing. I hope so. As it wilted my other investments have grown. I am still making more than four percent on my investments and I'm still able to live quite nicely on the income. But one never likes to see an investment go sour. That said, I'm not sweetening the pot by adding any more money to my AHF investment. I'll slide AHF to the side and wait patiently to see how this game unwinds.