Saturday, January 28, 2012

I talk the walk, but talk is cheap.

I say that I hate mutual funds but I still own two: CIB512 and TDB622.

I like to say that I love ETFs. I do. I like to say I hate mutual funds. I do. I like to say I fear the risk of holding individual stocks. I do. I like to promote "couch potato" investing. But, I don't have nearly enough of my portfolio in ETFs. I have a big portion of my portfolio invested in two mutual funds and I've got a big slice of my portfolio pie filled with individual stocks.

Oh, did I say I like to stay clear of investing too heavily in one sector of the economy for fear of taking a big hit if that sector should fail? Well, that is my stated concern but you wouldn't know it from my portfolio.

My portfolio allocation is a financial road map to be followed during retirement but that doesn't mean I'm not willing to get off the marked route to take a scenic route for awhile or slip onto the freeway to cover some financial ground quickly.

Some time ago I dumped all my mutual funds but two. Not only did many of those funds fail to deliver the growth I was looking for, they paid very poor dividends. This was an unsustainable mix. My investments make up about 40 percent of my income in retirement. Clearly I had to make some hard choices. I did.

So, what are the two mutual funds that I kept? Both are monthly income funds and the one is the TD's offering and the other is the CIBC's. They are similar but different. I like 'em both. I have a huge chunk of my portfolio allocated to these two funds. In 2008 CIB512 lost all of 17.15 percent. Not bad considering the economy at the time. TDB622 lost more; It lost 23.4 percent. That loss, and the reason for it, was the cause of my temporary loss of confidence. I wasn't the only one damning the TD fund at the time but the fund managers made some important changes and are now back on track.

Today, CIB512 yields 5.63 percent and TD622 yields 2.92 percent. I have my mutual fund allocation split evenly between these two. Therefore, my mutual fund investments are yielding 4.275 percent in cash to fund my retirement.

The CIB fund pays out much more in dividends but does not show the same strong growth as the TD fund. I take the CIB money each money, no DRIP in place here. The CIB fund is down, at the moment, 1.72 percent for the year.

The TD fund, on the other hand, may not deliver the monthly payments but it has grown 3.57 percent year to date. I let the TD fund accumulate it's dividends and if I need the money, I cash some units in December. I try and keep the value of both investments close to equal.

When it comes to stock, I've got way more that I feel comfortable owning and my stock investments are way too concentrated when it comes to sectors. The Canadian financial sector and the Canadian energy sector are my big interests. I bought a lot during the crash of 2008 and have even added to my holdings since then. I did dump a little, it seemed wise, but the little I dumped would have paid me huge rewards if I had held on a little longer.

So I own some Royal Bank (and added to it when it hit about $45 some weeks ago), some Bank of Nova Scotia, some Crescent Point, some Penn West (and added to it when it dipped below $18 and wish I had had the funds to buy even more when it got below $14 recently.) I still have some Inter Pipeline but I lightened up when it climbed above $15. I had bought in at about half that and it seemed an opportune time to bring my allocation more in line with my stated goals.

I have a little Suncor (SU) but I am dumping it all when I get the chance. I got into Suncor through Petro Canada and I have never made money on that investment. It has been a loser since the get-go. There are better places for me to put my money in my retirement.

The rest of my portfolio is in ETFs and not one is a bond fund. I don't like bonds right now. They are not paying the yield that I need. When interest rates recover, I know that may take a few years but recover they will, the value of bond funds will go down as fast as interest rates go up. Bonds? No thanks.

That said, remember that both my mutual funds invest heavily in bonds. And one of my ETFs, Claymore S&P/TSX Preferred Share ETF (CPD), acts in a manner somewhat similar to bonds. CPD is yielding 4.75 percent at the moment as paying a monthly dividend. It is classed as a low risk investment on WebBroker.

I struggle to give my portfolio a bit of a mix. Not wise to have all of one's financial eggs in one basket. Think Nortel or income trusts or American financials. To this end I have bought ZUT, XRE, REM, XIC, XMD, SDY and a host of other ETFs.

I am up about one and a half percent for the year. I have been up more during the month but the last few days have seen some corrections in my holdings.

I worry about my portfolio but I also worry that in today's financial environment there are no easy answers. I worry that the famous "couch potato" portfolio, and others like it, wouldn't deliver the yield I so desperately need, and might be as prone to crashing during a financial disaster as my present mix. And so, I hold onto my investments, live on the yield and keep my fingers crossed.

One of my investments that bares careful watching is DRW. It may be on the mend.

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