Monday, March 23, 2009

An Almost Classic ETF Index Portfolio

O.K. So, here is the first of my own fun benchmarks. I call them fun because they are all based on stuff that I have read on the Web or in books. They were all presented as ways to practise buy and hold investing.

None of these portfolios exactly mirror the original portfolios. They reflect my thinking after being strongly influenced by my reading.

I call my first benchmark - My Almost Classic ETF Index Portfolio
It is composed of:
20% Money Market Fund - I use the Saxon and the Royal Bank money market funds.
30% XSB - this takes care of the bond exposure
35% XIC - this takes care of the Canadian equity market
15% XSP - this gives a some exposure to a foreign market

A pure classic portfolio simply puts 1/3 in each of the following: XIC, XSP, XIN. I had a benchmark based on this for some years but was not impressed with its performance. Very volatile and not a lot of income from dividends.

As a retired person, I need the ability to get at some cash quickly. This explains the generous money market holdings in my version of the classic.

The bond holdings are there because of my age. They lessen the portfolio's volatility. In the past year, bond ETFs in a portfolio have delivered as promised and mellowed out the financial ride. I worry that going forward, as interest rates rise, bond ETFs will become a drag.

The last two ETFs are the equity portion of my benchmark. Being retired, I wanted to minimize currency risk and so weighted this fun portfolio towards Canadian equities. Lastly, I plunked all my imaginary money in the States for my foreign exposure. (In reality, I have portfolio exposure in Europe, Asia, and South America, along with the States. This diversification in my own portfolio has not delivered the protection from volatility as hoped.)

Since starting this blog, this Almost Classic ETF Portfolio is up almost 6% as of Sunday! But, this means nothing over such a short period.


Saturday, March 21, 2009

Benchmarks or A Man's Gotta Know His Limitations

Today is an important day for me - I'm going to tackle benchmarks. I will not get done, my wife has yardwork waiting for me, but I'll get started and finish as the week unfolds. But, I guarantee I will blog enough today to keep you busy with your own financial homework.

First, I am not going to reinvent the 'benchmark wheel' here. For an excellent article of the value of benchmarks, please go to:

These two chaps, Richard Croft and Eric Kirzner, designed three indices, which can be found on the Financial Times site at:

There is an index for the growth investor (down 5.22%), another for balanced portfolios (down 3.7%) and a final one centred on income (down 1.09%) for folk like me. The nice thing about these three indices is they can be easily assembled in reality. Their make-up is transparent.

I may say income folk like me but the truth is I am a mix of all three approaches, like many investors. I figure if I am doing better than the growth index, I'm doing O.K. And today, Saturday, March 21, I am down 4.74% for the year. Ouch! But the FPX Growth Index is down 5.22% year to date (YTD). Easing the financial pain is the fact that I on my way, thanks to dividends and distributions, to being able to withdraw 4% or more from my RRSP without encroaching on my mutual funds or securities themselves. (But with the economy still in the grips of a bear, it is still anyone's guess how dividend and distribution cuts will affect my final cash holdings for the year ending in December.)

For another perspective on the success or failure of my portfolio I have put together a number of benchmarks based on the financial stuff that I have read. There's my Hi-Yield Lazy Dude, my Canuck Retirement Strategy, my Almost an ETF Classic, and my TD e-Funds Approach - more on these later.

Lastly, I enjoy following some of the stuff posted by Frank Russell. Frank posts Sovereign Sample Portfolios on the Web. YTD the posted conservative portfolio has dropped -5.54%, the moderate portfolio has dropped -8.21%, and the aggressive one has racked up a double digit loss of -10.54%. Do you use Frank? How do your results compare to these?

If you check out the Frank Russell LifePoints portfolios you will find that the balanced growth portfolio has lost -4.71%. Does that number look familiar? My portfolio is keeping up with Russell's herd of financial experts. This is comforting.

Frank's Sovereign site is:
Franks' LifePoints site (Frank capitalizes the P in the middle - too cutsey in my book.) is:

Return Monday and I'll tell you about my fun indices, their make-up and what they tell me about investing.

Have a nice weekend.

p.s. If you are interested in the books written by Croft and Kirzner, I read Protect Your Nest Egg and recommend it, click on this link:

Wednesday, March 18, 2009

A Financial Myth Buster

I started handling my own investments after a financial adviser asked me how comfortable I would be losing 25% of my money (my wife recalls he said 30%). No matter, I decided I didn't have to pay someone to lose my money. I could do it for free . . . in my spare time . . . make a game of it. In the present economy, I have succeeded at all three.

I now find myself put out to pasture early, retired, in the position of having to take money out of my RSP at the very time I would rather be putting money in. Oh, how I miss those bi-weekly paycheques. Buyouts aren't all they are cracked up to be.

On the positive side, I am not alone. There are lots of do-it-yourself (DIY) investors, many are retirees and many share their wisdom on the Internet.

One of my favorite sites was run by the retired former head of the mathematics department at the University of Waterloo - Peter Ponzo. Ponzo, now in his 70s, has weaned himself away from his financial blogging and returned to his writing and painting. But his site is simply too good to let fail - unlike A.I.G. It is moving to:

Ponzo asks the same questions that many of us ask but goes an important step farther, he tries to supply an answer. He focuses the power of mathematics on financial questions and shows that many of our cherished beliefs may be more myth than fact. He expands our understanding of things financial while lowering our expectations of finding easy answers.

A Quote Without Comment

"Let’s not forget, A.I.G. was basically running an unregulated hedge fund inside a AAA-rated insurance company. And — like Madoff, who was selling phantom stocks — A.I.G. was selling, in effect, phantom insurance against the default of bundled subprime mortgages and other debt — insurance that A.I.G. had nowhere near enough capital to back up when bonds went bust. It was a hedge fund with no hedges. That’s why taxpayers have had to pay the insurance for A.I.G. — so its bank and government customers won’t tank and cause even more harm."

Thomas L. Friedman - New York Times - March 17, 2009

If and when the NYT begins charging to visit their site, it will be money well spent.

Another Quote Without Comment

Jeff Zucker, the chief executive of NBC Universal, has called comedian Jon Stewart "incredibly unfair" and "completely out of line" with his recent witty criticisms of CNBC, of Mad Money host Jim Cramer and of the entire financial media in general.

For another viewpoint, go to Barron's online and read:

Shorting Cramer
by Bill Alpert of Barron's

"Over the past two years, viewers holding Cramer's stocks would be up 12% while the Dow rose 22% and the S&P 500 16%, according to a record of 1,300 of the CNBC star's Buy recommendations compiled by, a Website run by a retired stock analyst and loyal Cramer-watcher."

"We also looked at a database of Cramer's Mad Money picks maintained by his Website, . . . you would have been much better off in an index fund that simply tracks the market."

. . . an excellent two-page article examining Cramer and how his numerous stock market picks have fared.

Monday, March 16, 2009

Calculate Your Financial Comeback

If you are still contributing to your RRSP, back in January the New York Times posted their Comeback Calculator, estimating when your plan will climb back to its peak.

To get a quick look at the Asian markets and later to view the markets in Europe - both views are available before the markets open here in Canada and the U.S. - I have bookmarked this New York Time's link.

For a good quick read of mainly U.S news I have found the New York Times and the Huffington Post sites quite good.
New York Times -
Huffington Post -


Sunday, March 15, 2009

Bucket Shops and Credit Default Swaps

This Sunday (March 15, 2009) the New York Times carried an opinion piece titled: Following The A.I.G. Money.

The article said that the now infamous credit default swaps, often referred to as a form of insurance, were more like gambling wagers than insurance policies. Huh? I did a Google search for more information.

I learned that 60 Minutes did a piece last October called The Bet That Blew Up Wall Street. It was an investigation into the central role credit default swaps played in the present global economic upheaval.

As everyone now knows, Warren Buffet called credit default swaps “financial weapons of mass destruction.” For most of the 20th century the present deep, unregulated involvement of the large American banks in the world of derivatives was illegal. But in 2000 Congress changed the law, passed the Commodity Futures Modernization Act of 2000 and exempted Wall Street. It seems odd, but page 262 of the legislation prevents states from invoking existing gambling and bucket shop laws against Wall Street. Gambling? Bucket shops?

What, pray tell, are bucket shops? Well, before the stock market crash of 1907 American cities had gaming houses called bucket shops where gamblers placed bets on whether the price of a stock would go up or down. The speculators did not have to own the stock to profit. They were making, as they say, a side bet – a bet, usually made by gamblers on the outcome of an event, say a poker hand. You don’t have to be a participant in the event to place a side bet.

Like gamblers, the players in the credit default swap market did not have to have, as they say, skin in the game. It was a side bet. They did not have to own the investment on which they were buying private insurance contract – contracts that paid off if the investment, say certain mortgage securities, went bad. They didn't have to own the investment to collect on the insurance – memories of the bucket shops.

Recently Alan Greenspan, the Federal Reserve Chairman at the time, admitted he had put too much faith in the self-correcting power of free markets. A humbled Greenspan acknowledged that he had discovered a flaw in his ideology. He told the House Committee on Oversight and Government Reform, “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.”

Under Greenspan the credit default market grew from millions of dollars to a more than $50 trillion dollar monster – and totally unregulated. Neither the big banks nor the investment houses that sold these derivatives set aside the money necessary to cover their potential losses and pay off their bets, a result of deregulation. When the derivative market turned south, and with no money behind their quickly souring obligations, the big players, among them Bear Sterns, Lehman Brothers and A.I.G., all found themselves not on the hook but hoisted painfully high on their own petards.

Rep. Henry Waxman, chairman of the house committee, asked Greenspan if he had learned that his view of the world was not right. Greenspan confessed he had. He said he had “found a flaw” in his personal ideology and he was shocked by his discovery.

“This crisis,” Greenspan has now admitted, “has turned out to be much broader than anything I could have imagined.” And yet, there are still bonuses being doled out on Wall Street.

Read These Articles in the Sunday New York Times

Appalling - simply appalling. You must read these two articles in today's Sunday New York Times. They work together but if you only have time for one, read the second. It is time that some of the speculators, whose bad bets - and they were bets and not investments - were faced to suffer the consequences of their stupidity and greed.

According to the Times article the reason that many of the credit default swaps were not classified as illegal gambling is that Congress specifically exempted credit default swaps from state gaming laws back in 2000.

". . . some 80 percent of the estimated $62 trillion in credit default swaps outstanding in 2008 were speculative."

More on this later . . .

A.I.G. Planning Huge Bonuses After $170 Billion Bailout
Following the A.I.G. Money

If the New York Times does begin charging for their online paper, these two articles are two fine arguments for spending the money to have access to the paper.

Wednesday, March 11, 2009

Years ago banking fiasco foreseen . . .

Much of the mainstream media (MSM) in the United States has been reporting that no one saw this economic disaster on the horizon. But, if one stays alert and reads a lot, there are stories in the MSM challenging this position. The New York Times today, Wed. Mar. 11, 2009, had an excellent article about a research paper written sixteen years ago titled simply: “Looting.”

Economists, George Akerlof, who later won a Nobel Prize, and Paul Romer, a well respected expert on economic growth, argued the promise of government bailouts isn’t merely one aspect of a banking disaster like the present one; no, the government safety net is the core problem.

Read the article here:

Tuesday, March 10, 2009

Can you beat Jim Cramer?

Comedy Central's Jon Stewart has been having fun at the expense of Mad Money's Jim Cramer. Stewart has been pointing out that just weeks before Bear Stearns crashed and burned Jim Cramer was encouraging investors to buy Stearns stock. Check out the link to the Huffington Post story.

Cramer has been making the rounds, The Today Show and Morning Joe with Joe Scarborough, trying to defuse the Stewart criticism.

What's the truth? Is this Bear Stearns stuff really being taken out of context, or is it indicative of the poor quality of Cramer's advise? Check out Cramer's track record at:

His accuracy is less than 50%. One could do as well flipping a coin and yelling "Booyah!" Take a bow, Jim, and slink off the stage. "Boo, yah!"

Saturday, March 7, 2009

WisdomTree DTN and DOO Cut Financials

About three years ago some things occurred in my life that caused me to think about retirement. I soon realized it is one thing to save for retirement but it is quite another thing withdrawing those savings. I did not find the idea of selling large chunks of my stock portfolio to cover living expenses appealing. I decided to take the dividend approach.

I put a lot of our RSP money in an ETF called Barclays Top 100 Equal Weighted Income Fund. We bought BTH.UN at around $10. It consistently paid a distribution of 10% on our original investment. It lost a couple of dollars after the Canadian government income trust bombshell but we didn’t sell in a panic. We held on for months, continuing to collect our distributions. When BTH.UN had climbed back to $10 we baled.

Now, we find ourselves in another dividend fiasco. Companies that had not cut their dividends in a century or more are now cutting, or eliminating, their dividends. Ouch! Our retirement portfolio allocation has 14% of our investment in American ETFs specializing in dividend paying stocks. Many of these ETFs have a minimum of 25% of their money in financials and some have as much as 50% or more. Again – Ouch!

Not only are stock values dropping by the day but the income needed to wait out this mess is shrinking. So, it was with great interest, and some relief, that I read WisdomTree is switching the investment strategy of two of its dividend-rich ETFs and removing their exposure to the financial section.

The WisdomTree Dividend Top 100 (DTN) and its international sibling, the WisdomTree International Dividend Top 100 (DOO) are replacing their large financial positions with other dividend-paying stocks. Both are replacing the "Top 100" in their names with "Ex-Financials."

With money in DTN, I appreciate this change in focus. This lessens my exposure to the American financial sector. Finally, a “Yeah!”

WisdomTree announcement:

Wednesday, March 4, 2009

I passed on Frank Russell.

Well, the markets around the world collapsed again on Monday, March 2, 2009. If, like me, you decided to tough out this downturn, you must be worrying, “Where is the bottom?” I believe the simple but unsettling answer is no one knows. Certainly many of the expensive money managers do not have confidence-inspiring records.

Let’s examine the road not taken, at least not by me. Once I considered entrusting my RSP funds to Frank Russell Canada Ltd. In the end, I passed. Today, doing the research for this piece, I came to the same conclusion. Frank is not for me.

Using the mutual fund information available on I discovered that $10,000 invested in the Russell LifePoints Balanced Income B fund back in August 2000 would have grown only by $469 by early March 2009. Not much growth.

I then looked at the CIBC Monthly Income fund – a no-load fund that can be purchased with an initial investment of $500 rather than $5000 required by Russell. How would a similar investment made with the CIBC have fared over the same period? It would have grown by $6542 – a return almost 14 times greater than the gold-plated Russell offering. The Russell fund had a yield of 4.49% based on the last trailing 12-month total, while the CIBC fund returned 7.56%.

It leaves me shaking my head.

Today I propose creating four benchmarks based mainly on ETFs and publishing their results along with the results of a couple of Frank Russell Canada Ltd. Funds. Russell posts the fluctuating daily value of their funds at:

Let the games begin.

Oh, if anyone has had any personal involvement with Frank, with good experiences or otherwise, I would love to hear from them. (An addendum - a Canadian reader contacted me to say that he/she was told that Russell funds purchased through a large Canadian bank do not carry frontend loading.)


Sunday, March 1, 2009

Time to dump the TD Monthly Income fund? Nope!

If you're here, you are looking for information about the TD Monthly Income Fund. I've posted a screen grab (click the link) showing how an investment in this fund would have grown if invested right at its inception. The TD Monthly Income fund is actually quite amazing, see the screen grab and I'm sure you will agree.

At the deepest drop during the crash of a couple of years ago, it seemed this fund had possibly lost its way. I dumped about three quarters of my units. Today, I have 15% of my portfolio in the CIBC Monthly Income fund and about 10% in the TD Monthly Income fund. My goal is to bring the TDMI fund up to the 15% level.

I've withdrawn about 9% of  my original retirement money to live and I am still up almost 50% in just more than two years. These past 26 months have been a fine time to be in the market. (I'm writing this March 22, 2011 and I have been retired since January 9, 2009.)

Welcome to my post and to my first blog with teeth. This post has been extensively modified since it was originally written. Today, August 28, 2010, I must again modify this post as a month ago Morningstar took another look at the TD Monthly Income fund. It is back in their good graces.

The following is taken from that Morningstar Quicktake Report. These reports are available to me from both ScotiaMcLeod and the TD Waterhouse.

"New risk profile strikes a more conservative stance.

After posting significant losses during the credit crisis, this fund has gone through a bit of a redesign and the net result should be a less risky offering. Style changes like this can sometimes be a cause of concern, though here the adjustments appear sensible and well executed . . . "

One big concern has been addressed. At one point, according to Morningstar, 35 percent of the bond segment of this fund was almost entirely made up of corporate issues, with roughly half of them below investment grade. For this reason, over a year ago I dumped 75 percent of my TD Monthly Income holdings and bought the CIBC's similar offering.

As of the end of July, the total bond weighting was about the same, but it's been redesigned in line with TD Canadian Core Plus Bond. The high yield allocation has been cut in half and the maximum allocation to equities and income trusts has been lowered from 70 percent to 60 percent. This should remove some of the risk and some of the volatility that had crept into this once numbingly consistent investment.

These changes were made in the aftermath of the fund's 12-month loss of 24.9% for the period ending February 2009. Although this was roughly in line with the category median, it was far worse than most of the other monthly income funds offered by the big Canadian banks.

To the credit of the firm and the managers, the fund hung in and made a very strong recovery in both absolute and relative terms as markets recovered. The fund had a great bounce back because the managers wisely did not hastily take risk off the table at the worst possible time. I have to confess, I switched funds at the worst possible moment and have paid dearly for this lack of confidence in the TD managers but I slept well and that is important, too.

There's more to life than investing but investing makes more possible.
Since the recent meltdown in the global markets, I have done quite nicely. At one point I was up about 37 percent. Today I am well off my highs but I am still up about 29 percent since taking a buyout and retiring. And this is despite having spent a big chunk of retirement savings on an almost six week holiday crossing the States and Canada in my vintage British roadster --- a 1969 Morgan Plus 4.

My present portfolio allocation has 15 percent of my RSP invested in the CIBC Monthly Income fund and 5 percent in the TD Monthly Income fund. If the economy continues to slowly rebuild, I am looking at dumping a lot of the bank stock that I purchased at the depths of the stock market crash and moving that money into these two monthly income funds and a mix of ETFs. Retired, and a little desperate, I strive for a successful mix of stocks and bonds delivering both capital gains and cash rewards. (But with bond interest rates so awfully low, I hate to confess, I am totally in the market and out of bonds, except for the bonds buried in my monthly income funds.)



I started this site as an experiment and thought it had failed. A month past and my site did not appear when Googled. Today I tried again and - amazingly - it showed up.

I am off to a Morgan owners meeting in Burlington today but on my return we will get this blog going.

I had thought of blogging for The London Free Press, if this failed, but now I feel more confident with this approach.

Let me blog for a week and then please let me know what you think.

Ken Wightman