Monday, November 8, 2010

Asset Allocation

I own too much. I'm doing well but still I feel uncomfortable. I have a portfolio allocation I am trying to follow but as I have confessed in the past, I have been somewhat poor at sticking to my plan. With the market doing so damn well, I believe it is time to show some restraint and put my investment house in order.

There are a lot of folk writing about investing. For today's post I am not going to reinvent the asset allocation wheel. Check out the following link: Canadian Couch Potato Model Portfolios.

Dan Bortolotti has really done his homework. He deserves a fine round of applause. Now, it's time for me, and for you, to do our homework.


Wednesday, September 29, 2010

An open letter to a retired friend . . .

My ScotiaBank stock is up 90.76%.

This info was added Dec. 28, 2011. As of today it appears that DRW will miss paying its fourth quarter dividend. Ouch! The overall dividend yield for the year was more than 10 percent but still I was expecting about $400 come the end of December.

What happened? I found this explanation on the Net:

"DRW holds PFICs (Passive Foreign Investment Companies) in its portfolio. PFICs must mark to market each year (in Q4) and realize a gain or loss in those PFIC shares. PFIC loses are offset against PFIC gains, and then against portfolio income. The PFIC losses for DRW this year wiped out the gains and Q4 dividend income, therefore, no dividend distribution . . . "

I'm holding my position. I'm not overexposed and feel little concern. We'll wait to see what the yield is delivered at the end of the first quarter of 2012 and we'll hope the value of this ETF doesn't continue to lose ground. This missed dividend payment does add a whole new wrinkle to owning DRW.

Dear Old Friend:

It was nice chatting with you. I always enjoy hearing about your latest investments. My portfolio is doing well but mostly because of good luck and good gut instincts. I think good luck is the big driver.

My Bank of Nova Scotia stock, for instance, is up 90.76%. I bought at the depths of the recent crash. I was lucky.

I worry about investing in any one particular company, even a Canadian bank. The ScotiaBank is getting deeper into Latin America. This could be good but this could also backfire.

BNS pays a dividend of 3.59% but the CIBC Monthly Income Fund pays 5.44%. For this reason, if and when BNS approaches its target value, I will dump most,or even all, to buy CIBC Monthly Income and TD Monthly Income.

The CIBC fund has 5.2% in Royal Bank shares, 4.9% in TD shares and 2.3% in my old favorite Crescent Point. The TD fund has 4.4% in the Bank of Montreal and 4.3% in the ScotiaBank and of course both have significant exposure to other Canadian banks, insurance companies and dividend paying oil plays. Selling my individual shares still keeps me deep into Canadian financials but spreads my investment dollar throughout the sector.

My goal at the moment is to hold onto my stock positions until they approach target values, then sell and reinvest following my Retirement Portfolio Allocation. In retirement, I want 14% of my money in the CIBC Monthly Income, about 11% in the TD Monthly Income. (I break these and count them towards my Cdn. equity and my Cdn. bond investments.) The only other mutual fund that I plan on owning when all is rebalanced will be Mawer World. It has just done so well and it paid 1.88% last year as a dividend. Mawer has earned a spot in my portfolio.

On the phone, we discussed ETFs. Here is the list of ETFs on my love-to-buy list:

DEM - WisdomTree Emerging Markets Equity Income - a 5 star fund with low risk and high yield according to Morningstar, I believe. A 3.41% yield when last I checked.

DNL - WisdomTree World ex U.S. Growth Fund - a 5 star fund with low risk and high yield. 3.7% yield at last checked.

GII - SPDR FTSE/Macquaire Global Infrastructure - a 4 star fund with low risk and average yield. The average yield costs it a star. Yield presently running at 3.9%.

PUI - Powershares Dynamic Utilities Portfolio - a 4 star fund with low risk and higher than average yield. Presently yielding at 4.06%.

REZ - iShares FTSE NAREIT Residential Plus Capped Index - a 5 Star fund with low risk and high yield. Presently returning 3.18%.

I bought DRW recently and watched the yield drop to 3% but the share price has appreciated and so I am cool. I also bought SDY (3.52% yield) about a year ago and I am still smiling. I took a risk buying PEY and watched the dividends wilt. Now, the dividends are slowly, very slowly, climbing back but this ETF pays monthly and and the yield is 4.04% calculated annually on today's unit value. As PEY regains value over the coming years, the dividend will also grow. All that said, I am not pushing others to invest in either DRW or PEY.

I have 6% of my money in XRE. There are better ways to invest in Cdn Reits but I like the simplicity of XRE --- and I'm lazy. I've owned it for years, it is up 5.53% and pays a 6.32% yield. Originally I was looking at investing 20% of my money in various Reits but even though many pension managers do something similar to this I couldn't muster the guts.

My big goal is to reach 65 without moving out of my investments. I'll try and live on just my retirement income plus the dividends from my RSPs. Then, when both Judy and I are 65, I'm going to put anywhere from 33% to 50% of our retirement money into 25 year guaranteed annuities. We should be able to sleep at night and with luck leave a nice chunk to the kids.

Just for your information, here are some other ETFs that I presently own.
CPD (Canada) - 5 star, low risk and high yield
EWH (Hong Kong)
EWS (Singapore)
DTN - U.S. Dividend ETF but ex-financials. I like this ETF portfolio addition because of the ex-fin.
FDL (U.S.) 
PGJ (China)
PID (International)
VIP (Canada) --- I ended up with this when BTH.UN was sold by Barclay's. I continue to hold a little.
VNQ - I like this, it's from Vanguard, it ups my exposure to Reits without being more of the same Cdn Reits.
XIC (Canada)
XMD (Canada)


Friday, September 24, 2010

Moving on and the Hunt brothers

My silver bar with the serial number erased in Photoshop.
Yesterday I finally put the Hunt brothers, Nelson Bunker Hunt and William Herbert Hunt of the great silver debacle, behind me. If you are old enough to remember the year 1973, you will probably remember how the two Hunt brothers, members of one of the richest families in the United States at that time, had entered the silver market in a very big way.

Large quantities of gold could not be held by American citizens back then and so the Hunts fashioned a workaround. They began acquiring silver, another precious metal, as an inflation hedge. As an investment, silver also enjoyed heavy industrial demand. Think silver-based photography. 

By 1979 the Hunt brothers, along with some wealthy Arab investors, had formed a silver pool. In short order they amassed more than 200 million ounces of fine silver, equivalent to half the world's deliverable supply. When the Hunts originally begun accumulating silver in '73 the price was in the $2.00 an ounce range. By early '79 the price had risen to about $5 and the historic rapid climb in price was on. 

By early 1980 the price was in the $50s, peaking at about $54 U.S. per ounce.It began to look as if the Hunts and their consortium would corner the silver market. Outsiders joined in the feeding frenzy driving the price higher.

But no one considered the reactions of the regulators to all this chaos in the silver market. A combination of changed trading rules on the New York Metals Market (COMEX) and the intervention of the Federal Reserve put the brakes on the Hunt's out of control silver binge. The price began to drop, culminating in a 50% one-day decline on March 27, 1980 as the price crashed from $21.62 to $10.80.The Hunt brothers declared bankruptcy and countless speculators went bust with them.

And then there's me. The drop in price from the lofty $50s to just over ten bucks was not quick and clean. There were ups and downs. I bought on the last down. There was no bounce offering a chance to sell my brick of silver.

In fact, over the years the price continued to gently slide and I lost money. I owned a valuable door stop.

Yesterday the price rose to more than $21 and ounce and I stopped by the ScotiaBank with my silver. I learned that yes they still bought 100 ounce silver bricks. This is only fair as they originally sold me my silver bar decades ago. I'll pay some fees, $30 for armoured car transport, and some other small charges. But, by sometime next week I will be more than two grand richer.

Now, what do I use for a doorstop?

Friday, September 17, 2010

Bought EWH_Love ETFs but not mutual funds

A few years ago I bought about $8000 of the HSBC Chinese Equity Fund (HKB517). Today I sold the stuff. I almost got back my $8000.

I am now retired and if it isn't pumping out dividends and it isn't appreciating, it should be history. I dumped the HSBC Chinese Equity and bought some iShares MSCI Hong Kong Index FD ETF (EWH). I got 400 EWH shares at about $17.31 counting the brokerage fees. EWH is rated a low risk ETF with an above average return.

As this didn't use all the $8000, I decided to put $500 into a rule breaking investment --- Mawer World Investment Fund (MAW102). I say rule breaker because this fund pays only an erratic dividend and then only once a year in December. Last year it paid 1.88%. And this is a mutual fund and not an index ETF.

So why did I break my own rules, why did I modify my portfolio? Well, I own some Mawer World already and like it. It has done well by me. Today it is rated a 5 star fund by Morningstar and despite changes in management, it is still on the their Picks list.

The deciding factor was my portfolio allocation. By selling the Chinese equity I was underweight in my international exposure. The purchase of the EWH didn't put all back in balance and so I bought the Mawer World as I felt comfortable increasing my holdings.

When the dust settles there may be some change left on the table. I will stick that into the CIBC Monthly Income Fund as I still have some portfolio allocation room in the CIB512 space.

Now, for the second half of this post. You know, the part about not loving mutual funds.

A few years ago I went through a mutual fund stage. I got burned time and time again. I am now in the process of extricating myself from those investments. One of the funds that I bought was the RBC O'Shaughnessy US Growth fund. It came highly recommended with lots of stars. Sadly most of its stars fell from the investment sky and today only 2 stars remain dimly glowing. Morningstar has removed this fund from their list of Fund Analyst Picks.

As of today I am down 57.07% with this investment. Investment?

This is an interesting turn of events. Do you recall the book How to Retire Rich by James O'Shaughnessy? I do.

According to Common Sense Advice:  

"Jim set up a set of mutual funds a few years back, promising to use his strategies in the funds. Of O'Shaughnessy's four original funds, only one beat either the Standard & Poor's 500-stock index or its average comparable fund, as measured by Morningstar. And that one, Cornerstone Growth, prevailed by a sole percentage point."

For me, this mutual fund has been a dog and a big drag on my earnings. Despite O'Shaughnessy's popular book, his appearances on television, the connection with the trusted Royal Bank, James got it wrong. It appears, one important step in retiring rich was to not invest in one of the O'Shaughnessy funds.

The above is from a Morningstar chart showing the preformance history of the RBC O'Shaughnessy US Growth Fund. Not only is it consistently in the 4 quartile, it is at the bottom. The black square at the bottom of each column represents the fund.
Why do I continue to hold it? Nothing in life is perfect. Surely this fund cannot keep its perfect losing streak going forever. Can it?

For another look at claims of retiring rich and being sucked almost dry check my post on my Freedom 55 investment.


On Sunday, Sept. 26th, 2010, while reading the Globe online I noticed my RBC O'Shaughnessy U.S. Growth fund was among the one day gainers with a bump of 3.86 percent. Like I said, it can't be on a perfect losing streak forever. My exit window may be coming.

Thursday, August 26, 2010

Thoughts on CPD and DRW

These posts are for entertainment purposes only. No part of these posts should be construed to constitute investment advice. The author is not an investment professional and assumes no responsibility for any investment activities you undertake. Prior to undertaking any financial decisions, you should contact an investment professional.

This info was added Dec. 28, 2011. As of today it appears that Wisdom Tree International Real Estate Sector Fund (DRW) will miss paying its fourth quarter dividend. Ouch! The overall dividend yield for the year was more than 10 percent but still I was expecting about $400 come the end of December.

What happened? I found this explanation on the Net:

"DRW holds PFICs (Passive Foreign Investment Companies) in its portfolio. PFICs must mark to market each year (in Q4) and realize a gain or loss in those PFIC shares. PFIC loses are offset against PFIC gains, and then against portfolio income. The PFIC losses for DRW this year wiped out the gains and Q4 dividend income, therefore, no dividend distribution . . . "

These missed dividend payment add a whole new wrinkle to owning DRW. (In the end, I dumped almost all my DRW. I have a hundred units as of today (mid-September, 2015.)

Now that I've got the above out of the way, let's talk about the Claymore S&P TSX Cdn. Preferred Share ETF (CPD). I did not put a lot of my portfolio into CPD. I bought just enough to learn first-hand how CPD performs. I now know I should never have bought preferred shares for a tax-sheltered portfolio. To read more on this please click on the link and read the post: Preferred shares for portfolio income and stability: Oh?

I admit I am only a successful investor because the markets are generally good places to park your money. My success is as much luck as skill. I don't want to lead anyone astray.

Today, mid-September, 2015, my portfolio is up about 45 percent since retiring around January 9, 2009. And this is after removing tens of thousands of dollars to help finance my  retirement. Before my heart began acting up, my wife and I spent almost six weeks on the road traveling about North America in my vintage automobile, a '60s Morgan Plus 4. Retirement has been good and my investments have helped to make it so.

I've made mistakes but even the mistakes have often resulted in money to spend in retirement.


Tuesday, January 12, 2010

Chapter Two_Getting our ducks in a row

In the first chapter you learned about spreadsheets. I hope you downloaded the spreadsheet and played with it. It will accurately track your day to day expenses. It will also track your income. Using these numbers, it will tell you how far into the black, or in the red, you are running your financial life.

You probably even made some surprising discoveries. I know that when I looked at my budget I immediately saw a couple of places where I could painlessly cut expenses if necessary. Having such a cushion, exit strategy you might say, makes one's financial life a little less scary.

The next step before we actually put together a portfolio, especially one for retirement, is to talk with a financial adviser. I am not a financial adviser. Reading this does not count.

The first experts with whom you should touch base are the ones who have written books on investing. I really liked Protect Your Nest Egg by Eric Kirzner and Richard Croft and The Portfolio Doctor by David Cruise and Alison Griffiths. I bought these.

Of course, the library has lots of good books on managing your investments. If you find one you like, buy it and add it to your personal library. Spend some time with these texts. You want to be somewhat knowledgeable for the next step - sitting down with a living, breathing financial adviser.

Many branches of Canadian banks have people on staff to assist investors and they also have associated businesses where they can send you for advice. I talked with folk at the ScotiaBank and at Scotia McLeod.

I then chatted with a fellow I had known for years at the TD Canada Trust branch where I banked. After quizzing me, he said, "Open a self-directed plan. You can manage your own portfolio. If you run into problems, I am always here."

I took my financial adviser's advice. I opened a self-directed RSP.

Thursday, January 7, 2010

What do you think of investing in . . . ? Fill in the blank.

I got an interesting call today. An American friend called to tell me that he had just bought some shares of Citigroup. It was a steal at under four bucks. He wanted to know if I thought he had done the right thing.

Now, this person has shown some smarts when it comes to stock picking and going against the prevailing wisdom. He bought some Ford stock when it hit a dollar. Mind you, this only averaged the book value of his Ford holdings down. He had bought lots earlier at a far higher cost.

So, what did I think. Nothing good. I confess that I have bought some stock. O.K., I confess that I have bought lots of stock. But looking back at how my stock picks have performed, I can't say that I have been brilliant - lucky maybe, but certainly not brilliant.

Stocks seem to be like potato chips: I bet you can't eat but one. And so if Citigroup and Ford perform well, chances are that something else in the stock portfolio won't do as well. For me, I've found that when all is said and done my index-based ETFs or mutual funds outperform my mix of stock picks.

Being that this fellow is in his early 50s and American, I would have gone online and checked the Vanguard - Retirement Insights page. There is lots to read and it is very clearly organized.

Then I would have checked out the Vanguard - Core funds. Why? With interest rates so low at the moment, I am not keen on having too much money in funds heavily into bonds. I'd take my chances with a mix of core funds with the intention of shifting more into bonds in a few years when interest rates have recovered. That is about the extent of my market timing action.

I looked up Citigroup (C-N) using GlobeInvestor. Its rating on a five star scale is one. One star!

Yet, despite its having but one lonely star, it does get a buy suggestion. (My rule is to wait for the strong buy suggestion. Too many stocks, in my estimation, get the buy flag waving.)

Cramer loves Citigroup and sees it as a great speculative play. But there is that word - speculative. And the last time I checked, Cramer does not do all that well when all his picks are considered. Indexes often beat Cramer. I know how he feels.

I wish my friend luck. He's probably made a good move, this time. Now, can he stick with but one.

Saturday, January 2, 2010

Lost decade? If I could only be so lucky in the next ten years.

The Globe called it "The Lost Decade for Investors." Hmmm.

At the beginning of the decade, if you had taken the advice of a lot of financial reporters and developed a financial plan based on a diversified portfolio with a carefully considered allocation of your investments, you might have developed a plan something like this. (This is based on my own portfolio breakdown but is not exactly how I am investing during retirement.)

  • 7% cash (Shove this in mostly in GICs with a little in a money market fund.)
  • 29% TD Canadian Index
  • 13.125% TD U.S. Index (Currency Neutral)
  • 13.125% TD International Index (Currency Neutral)
  • 22% TD Canadian Bond Fund (This is one of the rare funds that I would buy that is not an index.)
  • 15.75% TD Monthly Income

If you had taken $100,000 at the start of the decade and invested it as shown, and not put in another cent, your RSP would be worth more than $147,139.38 today. The reason it would be more is that I do not have a calculator for GIC investment growth handy and I have already made my point with the equity plus bond results.

So, if you are an investor who had a traditional plan and embraced rich diversification within in a carefully considered allocation model, you probably did alright.

...and yes I know that the TDMI is heavy with banks and also adds to my bond holdings. You can check the TDMI porfolio mix and blend it with your personal goals very easily. I did.

Always look below the hood when buying mutual funds or ETFs.

Friday, January 1, 2010

The Mean Decade: 2008 - When the financial world crumbled.

Sun Media reporter Thane Burnett has written a series on the past decade in which he found very little good to report. When it came to 2008, the article carried the headline, "The Mean Decade: 2008 - When the financial world crumbled."

Many of us, who have been saving for retirement and rode out the truly frightening 2008 correction of historic proportions, are kicking up our heels with glee. In the end, it was a good decade.

2008 was bad when you think about investments, but it was not anywhere near as bad as the media would have one believe. Everyone did not buy at the peak and dump their stock when all bottomed out. The story is far more complicated than that. Let  me give you an example.

If you had put $10,000 in a simple fund, say the TD Monthly Income on Jan. 1, 2000, you would have had $18,024.49 at the end of 2008. When growth like that is being achieved, saying the financial world crumbled as Burnett claimed, is the all-too-common shallow media response to a complex story.

If you had left the money in the TD MIF until the decade ended, you would have had $23,552.99 for an increase of 135.5% during the "mean decade." The financial story is not over but as the decade ended, the story was hitting some very positive notes.

I, by the way, owned a lot of TD MIF until early this year when I dumped about 75 percent of my holdings for CIBC Monthly Income. The CIBC offering has not performed as well as the TD one but it did not drag my portfolio down either, just put a gentle brake on its growth. A little less volatility offered the benefit of a better night's sleep. I'm not upset about my decision. This story is not over. I am still buying sleep with my CIBC purchase.

Like many investors, I found 2009 an amazing year, giving portfolio growth in the 30 percent range. If the 2008 crash chopped  a fast 20% to 25% off your balanced, diversified portfolio, 2009 may not have pulled you free of the financial hole dug a year earlier, but you are sitting in a very comfortable position.

A $100 thousand dollar RRSP portfolio could easily have been cut to a $75 thousand dollar portfolio in 2008. But that $75 thousand could easily have regain most of its losses in 2009. (100 X .75 X 1.3 = 97.5)

If you had had the nerve to buy into the market in the spring, there are lots of ETFs and inexpensive mutual funds that would have paid handsomely.

It is a rich, complex world. If someone tries lumping ten years together, a whole decade, one has to ask a few questions. The first question is, "Why is the Sun Media reporter not asking more questions?"

And they (Sun Media and other media folk) wonder why newspaper sales are slumping.