Tuesday, March 22, 2011

Could I just put everything into a Canadian bank monthly income fund?

The short answer to this question is 'yes'. For an example, look no farther than the TD Monthly Income fund. (Click on the posted graph to enlarge.)

When I originally wrote this, I had been retired for a little more than two years and had removed 9 percent of my original investment in order to live. This left my portfolio up by about 46 percent since retiring. I was happy but realized the market had been making a mad climb into the financial stratosphere ever since I left my job in January of 2009.

Nothing goes up forever and I wondered when the stock market correction would hit. A good friend, and a wise investor, was selling off his stock holdings as he wanted cash at hand to take advantage of what he saw as the coming correction.

I, too, had started converting my non-dividend paying investments into cash in order to take advantage of any big dip. If there was a dip, I could buy low; If there was no dip, but the market just charged on, I'd withdraw cash to live and leave my big dividend producers untouched to enjoy extra growth.

If you have followed this blog at all, you will know that I have an ongoing love affair with the TD Monthly Income fund. I've been a little unfaithful as I have also dabbled in the CIBC Monthly Income fund, too. These two mutual funds anchor my portfolio and supply me with a big chunk of income (CIBC fund) and capital growth (TD fund). But I have wondered whether I could just put everything in a couple of monthly income funds. It certainly would make life simpler. Maybe I possibly get by with just one: The TD Monthly Income fund (TDB622).

Is this possible? The short answer is 'yes'. The long answer is yes, sometimes. For the first years of my retirement, I managed my own portfolio and my portfolio outperformed the TDB622. But this all came to a dramatic end in 2014. The TD fund not only outperformed me by a wide margin but it also outperformed all the lazy investor ETF-based portfolios I follow. Despite the MER of 1.48 percent, the TD Monthly Income fund was the winner.

Check out today's art. (Click on the graph to enlarge it on your screen.) It shows what would have happened if you'd have put $400,000 in the TD Monthly Income on the day it was born and removed 5 percent annually on the anniversary of your investment. I figure one could have removed as much as 8.85 percent of the original investment every year and today still had the original investment intact. Note: this does not take inflation into account. Your original investment would not have the same buying power today by a long shot. 5 percent is a more sensible number.

If you want to play with the calculator that I used, you may find it here. I say may because who knows when the TD Bank will change its Website. TD Asset Management mutual fund calculator.


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