Monday, December 30, 2013

Education savings plans and the bank:
Do your homework!

The little girl isn't yet teething but she already has a education fund.

Both my granddaughters have RESPs (registered education savings plans). Open an RESP to put money aside for a child's future education and the government promises to sweeten the pot with a little grant money thanks to the Canada Education Savings Grant program. With growth within the fund untaxed, the money grows and compounds nicely over time. It sounds straight forward enough, but it isn't.

First, I've found it difficult to get information concerning RESPs from the banks. I've been to four different branches of two different Canadian banks and got a lot of conflicting information. A rep at one bank branch told me that to get grant money, I could not deposit the money for my granddaughter's education into a mutual fund. For that reason, the first money put into the RESP bought a GIC.

Another bank rep said that was wrong. This rep took my deposit and put it directly into a mutual fund. As other folk bought GICs for my granddaughter within the RESP and still others deposited cash, the question about mutual funds raised by the first rep still hangs in the air.

My one granddaughter has an RESP in which all donations are automatically invested. The other granddaughter with an RESP at another branch of the same bank has more than $600 sitting uninvested in her account. They refuse to even discuss any automatic investment approach, claiming this is not allowed.

Read everything you can on the government site. If you have any questions, call the government before taking your questions to the bank. Come the new year, I am going to make a few calls and update this post.

When you finally open an account and the first thing to be done is complete an investment risk questionnaire. The questionnaire is designed to allow the bank to set investment boundaries based on your personal tolerance for investment risk and market volatility. The bank representative assured my daughter the questionnaire was to protect her by enabling the bank to match her risk tolerance to her investment strategy. I say cut the gobbly-gook: The form is to protect the bank.

Rule number one: The banking representative selling the investment to be sheltered in the RESP, commonly a GIC or mutual fund, is not an investment expert. They are not representing you; They represent the bank. There is a reason for their somewhat opaque financial advice. They are not there to give out financial advice. They are simply there to sell the bank's products but without coming across as the banking industry equivalent of never-to-be-trusted car salesman in the automotive business.

Rule number two: In today's investment climate, no investment is totally safe. Some once traditionally safe investments now look to carry risk. And others, that once looked risky, now look risky to ignore. For a once safe but now possibly risky investment think of the oh-so-conservative GIC.

A non-cashable GIC with a one year term is delivering a yield of only one percent today. Inflation, according to Stats Canada, is running at 1.1 percent. This GIC may lose value over its term. This is not risk free.

The best GIC according to the info supplied by the bank was the Financials GIC Plus. It guaranteed a minimum of 1 percent annually with the possibility of paying as much as 20 percent over the five year term.

I sensed the bank representative was gently pushing the GICs as a safe place to stash a child's eduction savings. The bank rep did not want to delve too deeply into my suggestion of putting the mony in the TD Monthly Income fund. I have found that TD reps often pooh-pooh this income fund and try to steer one to other mutual funds in the TD stable. This is despite the fact that historically the income fund has bested a great many, if not the majority, of TD offerings.

Anyone familiar with investing knows a good balance of safety, income and growth is traditionally struck by a portfolio with a 60/40 split between stocks and bonds. The TD Monthly Income fund has about 59% in equities (almost 100 percent Canadian stocks) and 41 percent in fixed income and cash. It is damn near perfect. A nice perk is the MER (management expense ratio: a charge to manage the fund) is only 1.48 percent. Plus, this a no load fund.

A GIC paid only one percent over the past year. Compare that to the TD Monthly Income fund which paid 8.62 percent, and 2.57 percent of that was in monthly dividends. These dividends remain in the fund to compound thanks to the dividend reinvestment plant or DRIP.

The top five investment groups in the fund are financials, energy, real estate, utilities and communication services. These five account for a little more than half the funds investments. I know my son-in-law wants to have some exposure to energy. With the TD Monthly Income fund, his wish is granted.

Out of curiosity I compared the growth of the TD Monthly Income fund with the TD Energy fund. The energy fund was one of a number of funds recommended to my son-in-law by a bank rep. He has put some of my granddaughters' education savings into the energy fund following the bank's subtle persuasion. The fund charges a MER of 2.26 percent when last I looked. I wonder if the high MER plays any part in the fund coming so highly recommended.

To see this graph larger and clearer, click on the image.

One warning, but a big one. The stock market is volatile. There are no guarantees. No matter how well a stock, an ETF or a mutual fund has done in the past, it can not be assumed it will continue its winning streak.

That said, if, and I believe it is a big if, if the TD Monthly Income does poorly over the coming decade, I think a parent will have bigger problems than the loss of a few thousand dollars in an education savings fund. Such a loss would mean our economy was in the dumpster and the financial in financial free fall.

In my humble opinion, the 60/40 investment split offered by the TD Monthly Income fund should offer all the safety and security any reasonable person requires. Locking education money away in a low interest paying GIC is the investment that would give me sleepless nights.

Monday, December 16, 2013

Why I like dividends

Recently I bought my wife some Dundee REIT (D.UN). It has had a tough few weeks and its share value is still in the red in my wife's books. Yet, despite this loss, my wife's account shows a gain. The other day she collected the monthly dividend. It pulled her up into the black.

This is the importance of dividend income. One is not totally at the mercy of share value.

And, in the case of Dundee REIT, I believe the dividend is safe. (It is paying 8 percent at the moment and, as my wife and I only need 7 percent, we are confident in meeting our needs.)

Wednesday, December 4, 2013

Buying opportunities on horizon

All my recent buys are flagging. Do I care? Of course I do, but I like to see a falling market as a buying opportunity and not a disaster. I have watched Emera for a long time. Today I noticed that its share price has dropped to the point that the yield is now a full 5 percent. Emera (EMA) is a good stock, a solid utility. For a retiree, it is a fine core holding.

Back in April EMA was peaking at $37. I may pick up some for $27. That is if the market begins to show signs of firming up. If not, if all stays soft, I may hold out for an even better price.

Fortis is another utility that I have on my radar. Sadly, it only yields 4 percent. Still it has dropped about a fifth of percent today. If it gets down to below $30, I'll start looking at picking up some FTS. With luck, I may see a yield of more than four and quarter percent.

I'm also watching the U.S. market. There are some ETFs I have been considering but their yields are too low. If the U.S. weakens to the point that I begin thinking of re-entering it, I'll post my thoughts.

Please keep in mind, I am not posting this stuff to tell you in what you should be investing. I offer no guidance. I am just letting you see how one retiree is getting by in these tough times. And so far, thanks to years of putting money aside for retirement, my wife and I are surviving quite nicely, thank you.

Remember the advice I've mentioned in the past: "Don't panic!"

Tuesday, December 3, 2013

Not exactly death by a thousand cuts but it hurts

My investments are slowly spiraling down. Even my Royal Bank stock has dropped. The stock, only days ago worth more than $70, has now dipped into the $60s. My weaker stocks like Cathedral Energy are also dropping. I am still in the black with CET but it is clear I should have sold more of my holdings when I was busy taking some profits off the table.

But this is not unexpected. This is the stock market after all. We all love to gloat when the market is rising. You just have to learn to take the inevitable bad with the oh-so-wonderful good. On the bright side, I now have a little cash on the sidelines ready to invest when the right buying opportunity arises.

Tuesday, November 19, 2013

LIM: Speaking of gambles

Added near the end of February 2015: I broke my rule and invested in a company referred to as "unprofitable." My investment, very small, disappeared completely. Oh well, it was more fun owning LIM than buying a lottery ticket but no more profitable.

Labrador Iron Mines just continues to fall in value. Today the stock was below a quarter. Ouch! I'm damn glad I don't have a lot riding on that horse. This nag may fold before getting anywhere near the finish line.

I should have sold long ago. Foolish. I've now lost more than 75 percent of my original investment.

I have a rule: Never buy stock in a company that is not profitable. I broke my own rule and now I am sorry I did. Oh well, I didn't put a lot into LIM and so I can't lose a lot. C'est la vie.

Dundee REIT: an investment and not a gamble

O.K., all investments are to some extend gambles. No one knows the future. That said, Dundee REIT seems to me to be as safe a bet as one could hope for as long as one is in this investing game for the long haul.

I bought a few hundred shares a little while back. Those shares are up but show signs of faltering. If D.UN drops by a buck of more below my first entry point, maybe by even just half a buck, I think I may pick up another few shares equal to my first purchase. I'm still sitting on much of the cash I took out of the U.S. market and I think Dundee could give some of that money a good home.

Monday, November 18, 2013

I like to gamble - a little

I like to gamble, but just a little. I rarely buy lottery tickets. I don't see lotteries so much as gambling as simply tossing away one's money.

No, I like to gamble on penny stocks. My investments are no more than six months to a year's worth of lottery tickets and I take pleasure in watching the stock climb or tank. It can take awhile for the game to play out and during that time my need to gamble has been sated.

Labrador Iron Mines (LIM) was one of my penny stock picks. What a miss! It has dropped from around a dollar to a quarter today. I should have bailed when it had an early pop to $1.50 and above.

In the case of LIM, it is beginning to appear I might have done better with lottery tickets.

Friday, November 15, 2013

For retirement income, Fortis and Emera worth a look

According to Scotia Bank, Fortis is Canada's largest regulated distribution utility holding company. It has over 2 million retail natural gas and electricity customers plus a small portfolio of real estate holdings and stakes in 3 Caribbean regulated electricity distribution companies (Cayman, Turks, Belize). It also has a hydro-power operation in Belize.

All that is well and good but what really draws my interest is the dividend teamed with relatively low risk. Today I noticed that the dividend was at 3.9%. I try not to invest in anything that pays less than 4%. The Fortis stock price is down about a third of a percent at this moment. If it drops a wee bit more, the yield will be in my target zone.

I don't own a lot of utilities. I'd like to have some XUT, the iShares ETF based on Canadian utilities, but since very few companies compose the majority of this ETF, buying these stocks directly and not having an ongoing MER to contend with seems attractive.

I'd like to see Fortis (FTS) down at about $31 and I'd be in.

The other Canadian utility that I am giving serious consider is Emera (EMA). The Scotia Bank has this to say about Emera. Emera is a diversified utility holding company with core asset in Nova Scotia and significant investments in three other areas: two regulated electrical utilities in New England; a gas pipeline from Saint John, New Brunswick, to the Boston area; and a controlling interest in two Caribbean regulated electric utilities. It also has some smaller but growing investments all centred around utilities.

Emera has a yield of 4.9%. Like Fortis the risk is said to be low with EMA, the yield is more than acceptable and it has some upside potential. A quick look about the Net finds others who, like me, see a buying opportunity in the offing.

Thursday, November 14, 2013

Putting little bits of money to work: Maybe

I have some little bit of money sitting in couple of accounts. Little bits of money demand little investments: Penny stocks. Investments that cost less than $5 a share. B2Gold Corp (BTO) meets the criteria.

At less than $2.50, BTO is the right price. Its share price has come down over the past month. It appears to have bottomed and is now on an upward bounce. And best of all it passes the smell test. It appears to me to be a successful but undervalued little gold producer.

This morning I picked up 600 shares at $2.44. If it does well, it will give me a little extra money to do with as I please. If it does poorly, I won't lose any sleep.

And in passing, the Dundee REIT (D.UN-T) stock and the units of REM, an iShares ETF, are together enjoying a nice pop. I was up more than $400 on these two recent purchases when last I checked.

I have put some of my funds previously invested in the States to work and I continue to sit on the rest. I feel comfortable keeping some cash out of the game at the moment. It gives me the feeling that I have some wiggle room in a market that is pinching my worry nerve.

Tuesday, November 12, 2013

Thoughts on REM

The iShares Mortgage Real Estate Capped Fund or REM was originally a $50 U.S. ETF. It didn't hold that value for long. It almost immediately began a slow and steady slide to the fifteen dollar level. At the worst of the market crash, REM never dipped below $10 U.S. If you put any faith in these past numbers, you might think REM is coasting along at the bottom. Today it is selling in the $11.50 U.S. range.

REM is composed of a number of companies in the mREIT business in the States. I have simplified their business model to the extreme when I say that they borrow money at one interest rate and lend it out at a higher one. The spread is their profit. As a REIT they move massive amounts of their profits straight through to their investors.

Today REM is paying a dividend of better than 16 percent. This worries me. This payment falls into the "too-good-to-be-true" camp. Still I have owned REM for some time now, I was lucky and bought my shares of REM near the bottom. It has proven to be a wonderful addition to my portfolio.

I bought about 800 shares of REM yesterday at $11.50 U.S. and added this to my previous holdings. Will I buy more? Maybe. But unless it drops below $10 or I read something incredibly positive that I trust, I probably won't.

REM is a strong spice in my portfolio. It gives my income a much needed kick. Or, you might say REM is the high risk but high reward end of my barbell investment strategy. I've looked at the major players who make up the bulk of the REM holdings and they are all fair to excellent investments on their own. Not a one looked to be a poor choice.

Often ETFs have a few holdings one might personally consider dogs. I have a few ETFs like that. REM does not appear to be like this, although there might be some small holdings of which I am unaware.

Today, holding REM makes my life easier. It provides me with much needed income in retirement. And in the small amount that I hold, it does not give me pause to worry. I can handle the loss if it should come. C'est la vie.

I wrote a follow up to this, REM might have further to fall, in Jan. 2014.

Monday, November 11, 2013

Took the plunge: Bought some D-UN and REM

I took the plunge and bought some Dundee REIT and REM, the iShare mREIT ETF. I got the D-UN at $28.11 and the REM at $11.50 U.S.

I have watched both of these investments for some time and both were hitting what seemed like good entry points. Even if they drop a little, both of these investments pay a handsome dividend. These two have the muscle to dig themselves out of a hole, a small hole, if it should become necessary.

The REM purchase felt especially good. I have a goal for REM in my portfolio. Although REM commands only a very small portion of my overall investment allocation, this ETF punches well above its weight when it comes to delivering dividend income. I bought a little more than I should have according to my investment plan with hopes it would climb in value and allow me to sell some for a small profit.

I'll revisit these moves in the future and let you know how all this is playing out for me.

Friday, November 8, 2013

Looking for income and a little profit

REM, the U.S. iShares mREIT ETF, has dropped back to the very bottom of its long term range. The last time it dropped this low, I increased my holdings. If it drops again Monday, I think I'll may add to my position with a little extra with a eye to a small, quick profit after the little bump to the upside makes its appearance.

The other investment that has my eye is Dundee REIT (D.UN-T). This investment seems to be a little out of favour with many of the analysts at the moment. When it comes to Dundee I'm sitting with the contrarians. Come Monday, I'm going to try and pick up some up in the $28 range.

If REM climbs to $12.50 U.S., I'll take some profits. If Dundee hits $31, I'll do the same. I'll keep a little of both in my portfolio to enjoy the dividends.

Penn West fears were grounded in reality

Yesterday Penn West Exploration (PWT) announced plans to shrink the company to grow the company. When I heard this I was elated. For years I have felt PWT was a bloated behemoth which had grown to an immense size thanks to an appetite for overpriced resources in western Canada.

Trimming this company sounds good to me -- I believe, up to 2 billion in assets are on the block. A check around the Web shows lots of support for PWT's new direction. And yet, despite all the good vibes surrounding the move, some analysts are calling for a target price of of less than 50-cents above today trading price of about $9.00.

I figure, if you've got PWT, keep it. This is a hold. For me, this is not the time to buy. I may be wrong. I may be too conservative but I want to watch how all this plays out or unravels.

If you bought PWT when it was a high flying income trust, you have my sympathies. I fear PWT may never trade in the high twenties again. Certainly those days will not return for many years. If you bought shares recently, you may be O.K. You may yet recoup your losses. Let's keep out fingers crossed that the dividend does not have to be cut, that the assets sales bring in the envisioned cash and that a rebound, at least a little one, will be in place by 2016.

It's a long time to keep one's fingers crossed.

Thursday, October 31, 2013

Quick thought on re-entering U.S. market

Years ago I bought a thousand or so units of Powershares High Yield Equity Dividend Achievers Portfolio (PEY). It performed well and paid a nice monthly dividend. Since getting out of American equities, I have watched my U.S. ETFs mostly gain but in a few case lose value. PEY has been a growth leader among those jettisoned investments.

I've penciled PEY in as an ETF to watch. When there is correction, PEY will be on my short list of future American investments.

If you're wondering what exactly this ETF attempts to mirror, here is the answer:

PEY tries to give returns, before fees and expenses, reflecting both the price and yield of the NASDAQ Dividend Achievers 50 Index. The fund invests some 90% of its total assets in the common stocks of the 50 companies comprising the underlying index. Stocks are included mainly on the basis of dividend yield and consistent dividend growth. Google "Mergent" and "NASDAQ Dividend Achievers 50 Index" for more information.

Sold some Cathedral Energy, took some profits

Some time ago I talked about Cathedral Energy. I bought some 2300 shares. Not a lot but enough to to give my dividend income an immediate boost with the added promise of a small pot of gold at the end of the stock-picking rainbow. Today I dipped into that pot, selling a thousand shares.

ScotiaMcLeod has a target price of $7 on CET. They see it as a possible outperformer. With some of my remaining shares up more than 40 percent, I figure I'm in a good position to benefit from a price increase with minimal risk of cutting into my initial investment.

This is the kind of situation I love.

Now, about those shares of Labrador Iron Mines I thought were poised for a nice gain . . . I'm still "wishin' and hopin', thinkin' and prayin' . . . " But what I am not doing is gritting my teeth. My exposure is small and the loss, if I must eventually face that reality, will also be small.

Never risk more than you are comfortable losing.

Thursday, October 24, 2013

Learning a lesson on leaving market

I am still, for the most part, sitting on the sidelines when it comes to the U.S. I made out well with my American investments over the past few years but I decided it was time to take most of my profits off the table. I'm still well invested in Canada but I am very light stateside.

Is this wise? So far, no. After the Dow dropped about 600 or 700 points, it started climbing even before the debt ceiling fiasco was settled. It is now up 700 or 800 points. If I'd have held steady, I'd be in the black. At the moment, I am proof that leaving the market, practising market timing, is the wrong approach. (We already knew that, right?)

Still, my REM -- yes, I held onto my much loved REM -- is up and I am still enjoying its 17.93% dividend. You read right: 17.93%. I simply could not part with REM.

And my Canadian investments are plowing ahead. My financials -- Bank of Nova Scotia, Royal Bank, Sun Life Financial -- have all moved smartly up. ZUT has climbed back into the black and XUT, which I was looking at when it was about $18.75, is trading today around $19.25. Cathedral Energy is holding ground and showing promise for more growth. I'm looking for CET to break $6 in the coming months. Crescent Point Energy (CPG) has broken through the $40 barrier and some are calling for a target of $50 for the oil producer.

The percentage growth in value of my portfolio in is into the double digits since the beginning of January. Sure, if I'd have kept my exposure in the States, I could be doing even better. But I'm beating my goals, the cash on the sidelines is giving my portfolio increased stability, and I am prepared for any weakening in either the Canadian or U.S. market.

Ideally, I like to have a little American exposure and a little international but only a little. I need dividend yield and I tend to get higher paying dividends from my Canadian investments. REM is an anomaly.

Monday, October 21, 2013

Cathedral Energy investment well into the black

Some months ago I talked about investing in Cathedral Energy (CET). One reader also took the plunge along with me while others were critical of my move. They were right. The stock collapsed. I bought more, lots more and now the stock has recovered. My profits are now well into four digit territory and I've enjoyed a nice dividend while waiting for the turn around. And now, I'm right. :-)

With a jump of more than four percent today, I think it is time to take some profits. The stock purchased first will be the stock dropped from my portfolio. That stock was the most expensive. The stock I bought at the bottom of the trough, I'll keep. I have a number of RSP self-directed accounts so it is easy to know which stocks were bought when and for how much.

If CET continues to climb, I'll do wonderfully with the stock I continued to hold. If it does a U-turn and crashed, I may be able to stay in the black while continuing to enjoy a better than five percent dividend. It has all the earmarks of a win-win situation.

Wednesday, October 16, 2013

Was getting out the American market a mistake?

Yesterday the American market climbed almost into triple digit territory. Today the Dow soared past a gain of 200 when last I looked. Investors do not seem concerned with the U.S. missing a debt payment. There seems to be confidence among investors that the debt ceiling will be lifted.

The American political shenanigans have certainly put me off. I have dumped almost all my investments in the Yankee markets. Wise? Maybe not. But my Canadian investments are still growing, I still have lots of dividends streaming in, and I'm sleeping at night.

There are few accepted rules in the investment world but one is to stay invested. Do not try to time the market. But another rule is to invest only in what you understand. Right now, I do not understand the American economy. I feel quite uneasy investing too heavily south of the border.

I am going to keep some of my powder dry, as they say. I'm keeping enough cash on the sidelines for wiggle room if markets fall. Over the coming weeks, if this approach proves a disaster, I'll let you know.

At the very least, when I get back in I'll construct a portfolio delivering increased dividends.

Monday, October 14, 2013

Retirement investing: No guarantees

Retirement can be tough. It is not tough for everyone but for those relying on the stock market during retirement it can be one tough, rough ride. If the market suffers a downturn early in one's retirement, one can be forced to dip into the retirement portfolio principle. Dip too often and too deeply, and a retirement portfolio can be forced into a death spiral ending in all too early depletion.

If you are among those Canadian couples able to claim the maximum OAS and CPP payments, as of today you should be able to count on a guaranteed income of a little more than $37,500. You won't be rich, maybe not even comfortable, but you will get by.

I am uncertain about the exact amount as CPP payments are recalculated four times a year. Each January, April, July and October an adjustment is made to counter the effect of inflation. OAS is also rejigged annually but only once a year -- in January.

Unfortunately, the average Canadian does not draw the maximum CPP payment. The average Canadian barely draws more than $600 a month. So an average Canadian couple appears to have a government funded income in retirement of approximately $27,700. Such a pitiful amount demands retirees supplement this income with one or more of the following: a company pension, a RRIF or an annuity.

This where it gets confusing. My wife and I have visited a few financial advisors and they have been a little help but not a lot. The talk is filled with promises but not a lot of substance. When I have forced an answer from an advisor, I have not been happy. And later I have learned, as often as not, that the answers were wrong or incomplete.

For instance, one advisor would not discuss annuities featuring a cost of living increase. Too expensive to buy and too little income delivered, or so I was told. I was never given solid numbers. I was never given the chance to decide for myself.

There are few guarantees in this world and retirement is no different. Facing thirty years or more in retirement, not working but still spending, can be intimidating. And the percentage of one's RRIF portfolio the government demands must be withdrawn annually is downright daunting. At age 71 one must remove about seven percent and this increases with every passing year. Live long enough and the withdrawal rate reaches 20%! One is forced to dip often and far too deeply into one's savings. The withdrawal rules throw a big curve into the retirement game.

At this point, depending upon how much money you've been able to accumulate, considering an annuity of some sort seems prudent. In researching this post I came across the Answers! Numbers! An absolutely great site.

I'm not saying it tells all -- but, it does give one a lot to think about. If one does go to a financial advisor, the knowledge gained from the Retirement Advisor site will put you on a solid footing to discuss retirement income.

Now, I'm going off to play with the RA calculators. There may be no guarantees but there are answers.

Monday, October 7, 2013

Advantages of staying fully invested

As I stated in an previous blog, I am almost totally out of the U.S. The political game playing has made me uneasy enough to retreat from the States.

Was this a good move? Maybe. In the short term. In the long term, there are very good arguments favouring staying invested. If one is in the investment game for the long term, one must keep a long term perspective. In this view, market timing is foolish.

There is an excellent investment blog, Canadian Couch Potato, with a great post looking at market volatility with a mature, understanding, knowledgeable eye. My experience, as an investor with decades of market involvement, tells me the Canadian Couch Potato is right.

A few years ago, I dumped all my bond holdings. The yields were simply too low. I moved completely into equities and have not looked back. I am up. Way up. My dividend income is very satisfying. All that said, the day is coming when I will be moving back into bonds with the intention of getting in and staying in. The recent interest rate collapse, I believe, will prove to have been an anomaly. The classic equity/bond balanced portfolio will, in the end, be the best course of action for conservative, long-term investors like me.

One may win a few small financial skirmishes by resorting to market timing but I fear one may miss some important market advances when caught on the sidelines. It is a tough call and not one for the timid.

Friday, October 4, 2013

Fine tuning withdrawal strategy during retirement

Balancing the financial books in retirement can be tough. Why? The world is a tough place. Need I say more?

In just a few short years my wife and I will have to convert our RSPs to RRIFs. At that time it will become increasingly difficult to live on our dividend income alone. Why? Because the government stipulates the minimum withdrawal at age 71 is more than 7 percent.

We could, of course, simply convert our RSP savings into annuities or remove all our RSP savings and pay the tax. The annuity answer is not that appealing as it would lock my wife into a fixed payout for many years -- possibly decades -- all the while inflation would be diminishing the value of the annuity income. (I say it would-lock-my-wife-in as I have a failing heart and see little reason to believe I'll see 75, let alone 90.)

Withdrawing all the money seems foolish as well. The tax hit would be enormous. That leaves RRIF conversion as the only reasonable option in my book. Clearly, we must find the best approach to removing not only dividend income but some of our investment principal annually to meet the legally imposed withdrawal regulations.

Many of the Canadian banks post RRIF withdrawal rate tables. Here is a link to the TD Canada - Trust Retirement Income Options page.

One's first thoughts one has on seeing these tables and the increasing percentage of money that must be withdrawn is to think one's income must increase, at least in the early years of the RRIF. But this isn't necessarily true. These large withdrawals immediately attack one's principal and the toll this takes on one's portfolio is immediately apparent. Check out this calculator posted on TaxTips Canada.

Clearly, simply considering RRIF withdrawls is not enough. To know the whole story one must also look at annual savings after all expenses and taxes are paid. As long as one has available headroom, putting this excess in a TFSA seems reasonable. I envision a shrinking pot of RRIF funds and a growing pot of TFSA funds.

My goal is to generate enough money so that my wife and I can live together into our mid-70s in comfort. At the same time, I want to leave my wife in a position to live well into her 90s free of financial worries.

It is time to turn to Excel and start work on a spreadsheet. I'll keep you posted. Cheers!

Thursday, October 3, 2013

Looking back at Cathedral Energy: CET

Click on image to enlarge and view.

Some time back I talked about buying a little Cathedral Energy (CET). Some readers questioned the wisdom of this move and they made some good points. I wasn't surprised. No one has a crystal ball into the stock market's future. Investing is often a question-filled activity but for some of us it is a necessary activity.

As you may know, I'm retired. I need the dividends from my portfolio to live. I saw CET as a good source of income, its dividend yield well above my minimal four percent goal. I also thought CET showed signs of returning some nice growth.

So, how have I done? Well enough. I'm happy. I'm going to hold onto my CET. I think it still has legs and I still need the dividend income. (It may have some dips in its future but I can weather those thanks to what appears to be a rather secure dividend.)

I will not be adding to my position at present prices.

Wednesday, October 2, 2013

Pretty well out of the States

Today I dumped almost all my U.S. ETFs. SDY, DTN, DVY, FDL, PEY and PID are gone. I have 100 units of DRW left and a few hundred units of REM -- and that's about it. I also dumped my Chinese holdings that had a strong U.S. connection. PGJ is history.

Almost all the stuff I sold was up nicely since their purchase some years ago. The downside of doing so well on my American investments was that as the values climbed the yields fell. For the most part these investments were all yielding less than four percent. In at least a couple of cases the yield was below three percent.

With the Yanks threatening to renege on their debts, with the American government partially in shut-down, with the DOW still above $15,000, it seemed like a good time to put a big chunk of my portfolio in cash. There was some nice pocket change locked away in those U.S. investments. The sale has left me feeling quite good.

The hard part will be staying on the sidelines until a truly good buy-in opportunity arises. This could take a year but I feel certain that it is in the cards.

My Canadian holdings, plus the few others I still treasure, are returning more than four percent. Some are yielding amounts in the double digits. The income from the remaining equities should keep my books balanced in the short term. My wife and I will not starve in retirement -- at least not for a few years. We now have a nice cushion.

The portfolio is in good shape -- or so I think. I'll sleep well tonight (assuming my arrhythmia doesn't flare up).

Friday, September 20, 2013

PRY: looking for a dip

Almost everything I own took a dip today. Pinecrest Energy, which I still have not bought, didn't dip. It played in the red a little but it ended the trading day in the black.

I find myself wishing I had bought PRY at 38-cents when I had the chance. I'm going to tough this out and wait for a dip but I may lose out waiting for a return to 38-cents. I'm considering a purchase at 40-cents.

Oh well, on the plus side, it has been a fine investment year so far. With luck, I may end the year with double digit gains.

Wednesday, September 18, 2013

PRY and REM: Bought one, watching the other

PRY has not taken another dip into the 38-cent range. I am still sitting on the sidelines. This could be a mistake but c'est la vie.

REM, on the other hand, has taken off since it hit $11.60 U.S. Another difference is that I bought some REM.

It has been a good year for owning stocks. A check of my portfolio this morning showed that it may return double digit growth this year. Nice. Of course, I remove almost five percent to live in retirement and so not all the growth remains in the portfolio. But, for a younger investor with the chance to compound the gains, this has been a year full of hope.

Monday, September 16, 2013

An ETF and a stock: Both have my interest

Note: This is simply a blog covering the thoughts of a retired photojournalist trying to make ends meet. This is not financial advice. For financial advice see a financial adviser.

Recently the U.S. ETF REM hit a low of $11.60. REM has been popular of late with income investors because of its yield: better than 15%. I picked up a few more shares.

REM is not an investment for the faint of heart. This American iShares ETF is composed of companies involved in the U.S. mREITS business. The 'm' stands for mortgage. These companies borrow funds at a low rate and then loan out the money at higher rates. They profit from the spread. As REITS they pass something in the neighbourhood of 90% of this money on to their investors.

With quantitative easing coming to an end there is some question how this change will affect the bottom of line of companies involved in the mREITS business. I admit I haven't a clue. For this reason I haven't put a lot of money into REM. But I have held this ETF for some time now and as I pocket the yield I am building up a cushion from any envisioned financial pain.

Buying at $11.60 has lowered my average cost per unit. This makes me happy. This morning REM was selling for $12.51. This makes me even happier. A little REM, bought at the right price, can do wonders for one's portfolio income.

With REM purchased and climbing out of the buy-me range, I am turning my interest toward Pinecrest Energy.  PRY is selling in the 40-cent range. Clearly PRY has fallen on some difficult times. The question is: Are the difficult times coming to an end? Is a turn-around in the cards . . . or in the business plan?

The thinking of many of the analysts is "yes." The new target price for PRY ranges from a low of about to 55- cents to as high as a dollar. I'm getting my funds ready and if PRY takes another dip, say to 37-cents or lower, I'm in.

I like to think of myself as an ETF investor but the truth is my few stock holdings have given my portfolio a nice, and much appreciated, boost. Still, what will I do with my earnings if PRY should perform? I'll buy an ETF, XUT, the iShares utilities-based ETF, if it is still selling for less than $19.

If  I can get my income up during the good times, I am in a better position to weather the downturns. A few dividend cuts in the future will be of no consequence. I'll still be paying my bills.

Thursday, August 22, 2013

Bought a few more shares of REM

Today I bought another 100 units of iShares REM: iShares Mortgage Real Estate Capped fund. I've owned a little REM for some time now. I watched as it climbed slowly to more than $15 U.S., I believe. Today it had pulled back to $11.60 U.S. and I picked up a few more units. The threat of higher interest rates has investors in REM on the run.

I checked the ten biggest holdings in the ETF and when they all passed the sniff test I ordered a 100 units. Still, I am quite leery of the companies that make up the REM ETF: mREITS. Without getting too deeply into the complexities of this business model, mREITS, I believe generate income by buying mortgage backed securities with borrowed money at short term rates and then making loans at long term rates. The difference or rate spread is profit.

REM is one of those investments that is like a potent spice. A little REM gives a nice kick to one's dividend income. The important word here is 'little.' Keep REM as a small portion of a total portfolio and should it take a big tumble the loss is minimized by the lightness of the exposure.

Personally, I call REM high risk.
The outrageously high dividend and a business model filled with question marks, makes REM a high risk investment in my mind. Still, I like owning a little REM. A yield of 15.8 percent exerts a strong pull.

I'll return to REM and its position in my portfolio at a later date. If you'd like to know more about mREITS read the following from Zacks and for even more info click the link.

mREITs in Focus

"Unlike equity REITs, mortgage REITs do not hold properties, but invest mainly in mortgage backed securities (MBS) instead. These use short-term debt for financing their purchases and are usually highly leveraged.

"Securities in this segment are among the highest yielders in the equity world thanks to their combination of leverage and real estate holdings. But since these are REITs, a pay out of at least 90% of earnings to holders is mandatory in order to obtain a favorable tax treatment. With this focus, many mREITs pay out double-digit yields, handily crushing broad Treasury bond markets and other dividend payers.

"Thanks to this structure, mREIT offer up a very compelling risk reward play. That is because these REITs borrow capital at ultra low short-term rates, and then invest in potentially higher yielding real estate portfolios. Basically, securities in this segment often use leverage to make money off of the spread differential in rates while still paying out high yields to investors on a regular basis."

Monday, August 19, 2013

Tough problem, easy answer, mixed outcome

I haven't blogged about money for some time. I suffered an ICD storm — my implantable cardioverter-defibrillator delivered four full-power jolts in eight hours, stopping a number of life-threatening arrhythmia events. The experience left me shaken but alive and in the hospital emergency ward. Since then I've been busy seeing doctors about my health, lawyers about my will and bankers and financial advisers about what happens to my portfolio in the event of my death.

The portfolio I have been managing during retirement is divided evenly between my wife and me. Retiring at the very bottom of the global financial meltdown, I've done quite nicely. Even though I remove $30,000 or so every year to live, the portfolio has grown by more than half in just four years and some months. Some years I have made more in retirement than I ever made while working.

Am I a financial wizard? No, of course not. I'm simply enjoying a damn fine streak of luck. Anyone bragging about their great investment results over the past four years is either a blowhard or a financial adviser.

Let's look at just one of my investments: ScotiaBank. As an investment it is a no-brainer. I put a big chunk of money into BNS at the time of my retirement. The shares were trading for less than $30. Today my shares have more than doubled in value.

Brilliant? No. If I were brilliant, I'd still hold my Inter Pipeline shares. When IPL.UN doubled in value, I sold. Bad move. Today those shares are selling for triple what they did when I retired. (In my defence, both the Cathedral Energy shares and the Sun Life Financial shares I bought have done very nicely and both are paying a fine dividend.)

I have been investing in the market since I was a boy and the one thing I've learned is that when times are good the market is good. A rising tide lifts all boats, as they say. When times are poor, the market can be tough for the timid. A falling tide strands many boats, leaving them high and dry. The trick to making money is not just having success during the years of feast, the trick is not losing one's shirt during the years of famine. It takes a long time to make up the lost financial ground.

Which brings us to the focus of today's post and to the advice I have for my wife (and for a friend, BM, puzzling over how to run his retirement portfolio.)

First, have an investment philosophy. Mine is: Invest in dividend paying stocks. Stock prices go up and stock prices come down. Dividends boost the climb higher and cushion the inevitable fall.

Next, invest in a balanced portfolio. A mixture of stocks and bonds is important. I found this hard to believe but I've seen study after study showing this is essentially always the case when a long enough investment period is considered — we're talking more than a decade.

My third rule is keep costs down. This generally rules out a lot of mutual funds.

There's more to successful investing than the above but in the past simply following the above guidelines would have resulted in one fine retirement portfolio. If you need proof, click on the image posted below.

The TD Monthly Income fund (TDB622) is a balanced fund presently holding about 58 percent equities, 36 percent bonds and 6 percent cash. The mix changes over time but it is always an equity/bond mix with the accent on equities.

As a monthly income fund, TDB622 is by necessity heavy on dividend paying equities. Despite being a mutual fund, it has a reasonable MER: 1.48 percent the last time I checked.

If a retiree had parked $500,000 of RSP savings in TDB622 in January 2000 and removed 4 percent at the end of every year, 4 percent being the traditional rule-of-thumb safe withdrawal rate, today that retiree would have removed $260,000. Yet the investment in TDB622 would now be worth $1,058,269.94. Wow!

If that that retiree had not demanded dividends but had been content with simply buying a balanced fund, like the TD Balanced Index, they would have less than half as much — and this despite the much lower MER of an index fund.

Do a little research yourself, here is a link to the TD Asset Management fund calculator. Pick the TD Monthly Income-I fund from the Balanced funds, click on Prices and Performance and then click on Advanced Graph Growth. This brings up the calculator. I believe all fields are open to modification.

Now for some caveats:

Dividends can be too good, too high. Outrageously high dividends are a red warning flag. This caveat applies to stocks, funds and ETFs. Read: When fund yields are too good to be true. My two personal picks in the monthly income fund arena are the TD offering and the one from the Royal Bank. Unfortunately, the RY monthly income fund is closed to RSP investors. There are some ETFs that compete but they do not have the long histories of the mutual funds.

Another caveat is buying a bond fund or a bond ETF is not the same as buying actual bonds. Google this problem and learn the difference. And read the article Is Your Bond Fund Really Losing Money posted on the Canadian Couch Potato. This article may keep you from panicking when bond funds and ETFs are losing value.

I've always liked the Canadian Couch Potato philosophy but I've never actually followed it. I've tried but I always get side-tracked. Now, with my health problems, it is time to simplify my holdings. It may not pay as well but it will definitely be easier for my wife to manage. When I have my new portfolio ready for launch, I'll post my findings.

Till then, cheers!

p.s. If you like crunching numbers, try and find a Canadian Couch Potato portfolio that would have beaten the TD Monthly Income Fund over the past decade. My guess is the TDB622 fund will do very nicely despite its higher MER.

To compare historic market returns of funds other than TD offerings, go to The Globe and Mail, Globe Investor: Funds page.

Tuesday, April 23, 2013

European economy may be slowing

As the numbers pour in from Europe, it appears the continental economy is slowing. Germany, the big powerhouse when it comes to Europe is reporting numbers reflecting a slowing manufacturing sector. With the change in the value of the yen, the Japanese manufacturers may be stepping up to the plate and out competing the Germans in some areas.

The American market, as well as the Canadian one to a lesser extent, is again on a roll. If the Dow climbs enough, say breaks 15,000, I'm thinking of tucking my tail between my legs and running. One thing is certain, weak rallies like the present one, cannot continue forever. The market will come off its highs. It is just a question of when.

I'm not a market timer. Yet, when I see stocks that are down which in the recent past I would have been willing to pay more for, I see bargains. I'm not always right but I'm right often enough to keep my head well above water. There are some stocks in my portfolio that are pulling at me like the mythological sirens of ancient Greek literature. I use the word sirens carefully.

These stocks may be calling me up onto the financial shoals. If I do buy, for once in my life it will NOT be to hold for the long term, it will be to make a quick profit. I'd like to have as much cash in the bank by this fall as possible.

Unless the financial picture changes a lot in the coming weeks and months, I see a big personal sell-off in my retirement future. I also see two big stumbling blocks:

  • The idea of selling off one's equities stirs fears of missing out on a continuing bull run. The result is that one is left holding over-valued stocks when the market turns south suddenly.
  • Holding cash during a falling market is like refusing to buy on Boxing Day. It is hard not to get into to the buy-now spirit. The result is getting back into the market too early.

Still, I cannot believe that holding forever, as I tend to do, is the course to follow at all times.

Friday, April 19, 2013

It may be a bear, but the claws aren't out; Yet.

To hear some of the business commentators on television going on and on about the awful bear market devouring all the year's profits and then some, you'd think the financial world had come to an end.

Tonight I downloaded the numbers from one bank to my Excel spreadsheet and input the numbers from my other account at another bank. I'm still in the black, not by much, but my numbers aren't red. What makes me smile is that I have taken ten grand out in order to live and I am still in the black.

My gut tells me that this bull still has some energy left to burn but my gut has been wrong in the past. I'm going to hold on, see how the financial world looks next week, and I may even try to buy some stuff.

The Romans used to read the entrails of sacrificial animals. I listen to the company quarterly profit reports, to the inflation announcements, the unemployment numbers . . . . I think the Romans could tell the future just about as well as I do.

Remember, I'm the fellow who bought CET at $3.90 because it was a bargain, thought PWT was a great deal when it dipped below $11. (PWT closed under $9 today!) Oh well, my AUSE, REM, SLF, ZUT — all relatively new adds to my portfolio — are still up nicely. Something has to be doing well that my financial head is still so nicely above the rising water.

Have a good weekend.

Friday, March 15, 2013

Kevin O'Leary: Delivering the truth (maybe)

"I'm not a tough guy. I'm just delivering the truth and only the truth and if you can't deal with it, too bad."
 — Kevin O'Leary

Kevin O'Leary is obnoxious and proud of it. He is definitely a land-on-his-feet kinda guy. But, is he a man to be  admired or mocked?

When I first caught the O'Leary schtick on BNN, I thought he was loud, and rude, but maybe knowledgeable. But, it didn't take long to begin thinking he was playing more the buffoon than the brain.

Since becoming disillusioned with O'Leary, I've read a lot about the man and very little of it has been flattering. A great deal of what one finds in the media is trying to strip away his oh-so-carefully manufactured brilliant entrepreneur persona to reveal a rather manipulative, mean-spirited, little man.

To read some of the stuff to  which I am referring, follow the links:

Kevin O'Leary: He's not a billionaire, he just plays one on TV (ROB Magazine, The Globe and Mail)
TV's Shark Tank Guru: In Real Life, No Business Whiz (Time Magazine, Business and Money section) (
Leary's 'nutbar' remark breach of policy, CBC ombudsman says (The Globe and Mail)
Kevin O’Leary: The natural --- Kevin O’Leary makes great TV. But is he the savvy business mogul he’s made out to be? (Canadian Business)
Brainy Quotes

So, here is the question: If O'Leary is simply a naked promoter who enjoyed one very lucky break, a lucky break that almost destroyed one of North America's most successful companies (Mattel), why does a respected Canadian business school at one of Canada's top universities risk sullying its reputation by putting Kevin O'Leary on their Advisory Board? Could the answer be found in one of the following links?

Kevin O’Leary. Millionaire Success Story
Kevin O’Leary Shares Cold Hard Truth on Student Business Ideas
Too successful to retire 

I think it is safe to say O'Leary is a boor. I don' t think even he would argue with that. He might even agree that "I'm just delivering the truth . . . "

Being prepared for the worst

It's nasty out there. I know a fellow with a great education, a fine work history and a lifestyle that is the envy of almost all. When the economy crashed in 2008-2009, he lost his job. Despite all he had going for him, he has failed to completely recover from the personal setback of four years ago. The sector in which he has expertise has yet to recover.

Now, a financial sinkhole has opened under his wife. After more than a dozen years at a fine company with a fine job, the company has been sold and she is finding her job threatened.

This couple lives in the States. When a couple loses both good jobs that were the financial underpinnings of their lives, they lose a lot more than Canadians. Here, I am thinking of the health care ramifications. For the first time in many, many years, this couple may soon find they are without health insurance. An unforeseen major health emergency could bankrupt these two. They are frightened.

There are some lessons here. One: Life isn't fair. This a truism that threatens all of us. We can be blindsided at any time. And Two: We must try, as best we can, to be prepared for the unforeseen.

I'm a big believer in budgets and spreadsheets. This doesn't mean you don't spend money, but it means you know where you spend your money. When my wife left her job as a manager some years ago, I looked at our budget. I found stuff to trim. It hurt but we survived.

Then I lost my job. A career approaching four decades came to an end. I jettisoned stuff, modified my life and my lifestyle and I pulled in our financial horns. It hurt but we are surviving.

The truth is, it hurt more when my wife stopped bringing in the big bucks than when I lost my income. That first disaster was a wake-up call. We visited banks and talked to financial advisers. Although I had dabbled in the market all my life and my wife had worked in the market early in her career, we were not using the market to full advantage. Talking with the banks and the advisers made us aware that we should open our own self-directed portfolios.

Between the time my wife left her job and I took early retirement, we took control of our financial lives. We began experimenting with various financial approaches and using our portfolios as our test bed. I started a spreadsheet to track our income and our expenses.

The advantages of dividend paying stocks quickly became apparent. We began replacing our missing income with funds generated by our retirement savings. When the Christmas layoff struck the newspaper, I turned to my spreadsheet and confirmed I could live on the reduced pension being offered. I took a buyout, stuck the money in the market and never looked back.

I believe everyone should track their income and expenses with a fine-tuned spreadsheet. It is easy and not at all time consuming but it is eye-opening. You might find yourself very surprised to learn where your financial life leaks money.

The couple I spoke of earlier have been dipping into the husband's retirement funds in order to live. I wonder about this. I think about how I remove an amount equal to six percent of my retirement savings at retirement each year without ever touching the underlying investments.

If the couple now facing their own financial Armageddon had invested all their retirement money in dividend paying stocks back in 2008/2009, they might have an annual income available to them of about $32,250 today. (This is based on them having about $600 thousand in retirement savings at that time and only removing dividend payments. This also takes into account a ten percent penalty imposed by the U.S. government on funds removed early from a retirement plan.)

If they have $500 thousand still in their plans, they could gamble today on some investments that return better than six percent. For instance, REM (iShares FTSE NAReit Mortgage Plus Capped Index Fund) is paying 10.95% today. Investments like this could deliver better than $49,000 income annually -- after expenses.

I have a little REM in my portfolio and I wish I had more. I got in when it was maybe half the price.

I know this couple has a financial adviser. With a portfolio of this size, his/her payment should not be equal to more than one percent of the value of the portfolio. If this person is good, it should be possible for their retirement funds to generate good cash flow and maybe keep the wolf away from their door. (I cannot say for sure as I don't know all that much about their expenses but they don't have kids.)

I realize this couple would be taking a big chance by restricting themselves to high dividend paying investments. In a downturn a lot of the value in their portfolio could disappear quickly. On the other hand, if they simply start withdrawing funds in order to keep their books balanced, they could completely deplete their retirement savings in just a few short years.

I don't know what they will decide to do. One or the other may soon get a new job. They may get a break, a reprieve, a stroke of luck. If they do, I hope they take advantage of the breather and take control of their financial lives, open a couple of self-directed portfolios and track their income/expenses with a spreadsheet.

Thursday, March 14, 2013

Failed to buy CET

In the interest of full disclosure, as I type this I have a couple of active buy orders for CET (Cathedral Energy Services) in play. The last trade was for $4.15. I've put in my order at $4.14. I'll post whether I'm successful or not at the end of the day. (I wasn't.)

I believe CET's ex-dividend date is March 26th. If you are an  owner of record of CET stock on that day you will receive the 7.5-cent dividend in mid-April. For that reason, I'll still be pursing the purchase of CET for the next few days.

[The next day.] The stock ended the first day with no momentum, I decided that my bid of the day before was now too high. As it turned out, I was right. CET continued to lose value. It dropped to about $3.97 in early morning trading. I thought to myself, this stock just keeps falling; It fails to gain traction.

But, it gained enough traction to prevent it from dropping the penny necessary to fill my purchase order. I remained a buyer with no matching seller all day.

Oh well, there's still Monday.

Today was a day for appreciating the strengths of a mixed portfolio. I ended the day with a four digit gain thanks, in part, to PennWest. It was a major gainer with a run up of 5.22 percent to close the day.


It is now more than a week later. I failed to buy the shares of CET. I was just trying to hard to get a bargain. Today CET was trading around $4.41. It, and my share of PWT that I am always bad-mouthing, are not just holding up but climbing. They are helping to soften the daily losses I have been suffering. This is rather ironic, yes?

Friday, March 8, 2013

PennWest climbs after buyout article

Earlier today I read that Penn West Petroleum (PWT) was climbing on the strength of an article posted on Seeking Alpha. The post speculated on what a sale of the petroleum company would mean to its stock price.

I checked out the article and smiled. I have had a lot of luck with buyouts during my years of investing. The first one I encountered was Britoil back in the '80s. The little North Sea oil producer was taken over by British Petroleum.

The last one to touch me was Progress Energy. The Canadian natural gas producer was taken over by Malaysia's state-owned oil company Petronas in a 6-billion dollar deal. My wife was really happy with that turn of events. I had just put some of her portfolio in Progress and, as I recall, I got her into the game for something around $10 a share. With the Petronas bid, she saw her investment approximately double in value.

Here is a link to the Seeking Alpha article that is possibly driving PWT higher today. At this time, PWT has gained more than 4% during the trading day.

PWT is not one of my favourite oil companies. I ended up with PWT in my portfolio when PWT took over Canetic. Now there was a buyout that didn't put a smile on my face. With a stake in PWT, I started following the stock and have increased my exposure to PWT over the years. It pays a nice dividend, it is among the best paying stocks that I own, yet, I would be happy to get anything close to what the Seeking Alpha article envisions as a possible buyout value.

Just a note on CET

The Cathedral Energy Services stock price tumbled over a cliff yesterday. I bought 600 shares of CET that I found in the rubble. My average price was below $4 and the dividend yield was north of 7%. Today the stock tried to stage a comeback but failed. It couldn't get past $4.10. Right now it is selling for $3.78 and the yield is approaching 8%. The volume today is absolutely incredible. It is over 1.25 million and the market is not yet closed.

I'm holding pat at the moment but if I buy more I will do it soon. A Q1 dividend of $0.075 per share with a date of record of March 31, 2013 has been approved. The payment is April 15, 2013. (Some are reporting an 8-cent dividend but I think this incorrect. I believe, they are rounding up the 7.5-cent dividend. With such a small amount, I think this is inaccurate.)

Tuesday, March 5, 2013

Another look at my Freedom 55 investment

About two and a half years ago I did a post titled: Freedom Fund down 71% Puts Mattress Up 345% . Today I decided to take a look at how my Freedom Fund investment is doing compared to my TD Monthly Income.

I had $1216.78 in my Freedom Fund account back on June 30, 2009. As of this past December my Freedom Fund investment has grown to $1590.22.

If I had put that $1216.78 into a simple, balanced fund like the TD Monthly Income, I'd have $1686.27 today. Despite the TD fund taking a $96.05 lead, I'd argue the fund managers at London Life are doing almost as well as the managers at the TD -- at least when it comes to stock picking. When it comes to the management charges, the Freedom Fund managers are actually ahead.

And that's one problem with Freedom 55 -- the MER charges may be too high.

Oh, and my mattress is still well ahead of my Freedom 55 investment. If I'd simply shoved the money under my mattress, rather than giving it to London Life, I would be sleeping on a lump of cash still worth $4196.71.

Spreading out the risk

Anyone following this blog knows I have made some bad calls lately. They are not bad enough to keep me awake at night but they are bad enough to slow the growth of my portfolio.

But, I don't have all my bets in one stock or in one sector; They aren't even all on the same continent. I have more than thirty investments and since some of those are ETFs, the total number of stocks in which I have an interest number in the hundreds, if not the thousands.

With the market climbing daily I figure about 94 percent of my investments are performing well. This is why one mixes up one's investments. If one knew, really knew, what was in the cards, one would put everything into one investment and make out like a bandit. Sadly, the world doesn't work this way.

I have two big questions: At what point in the future will my under performing stocks, begin performing like the other investments, and at what point in the future will my great performing stocks loose steam and begin falling like my present losers?

I'm betting my dogs will soon take off and then all my investments will tumble together. I'm already looking at what to jettison in order to have cash on hand to buy during the correction.

Tuesday, February 26, 2013

Labrador Iron Mines (LIM)

Added near the end of February 2015: I broke my rule and invested in a company referred to as "unprofitable." My investment, very small, disappeared completely. Oh well, it was more fun owning LIM than buying a lottery ticket but no more profitable.

Just caught a fellow on BNN  talking about Labrador Iron Mines (LIM). He wasn't bearish on LIM but he did have some strong reservations. He felt the cancellation of the proposed CNR line was not as harmful to LIM prospects as others in the trough but I know I would not buy LIM now.

Labrador Iron Mines reportedly sees no "adverse impact" from the CNR rail plan suspension but I find that hard to believe. On the plus side, LIM is going to be reimbursed its advance payment of C$1.5 million.

This is an isolated geological formation with large confirmed iron ore deposits. The proposed 800 km (500 mile) track was, in my mind, an important part of the puzzle confronting producers on how to make the extraction of the iron ore profitable. I think the challenge has just become harder.

If I held a lot of this stock, I'd sell. I only own a little and so I see this as a personal hold. If it climbs above my entry point, I'm out.

Saturday, February 23, 2013

Itching to buy: CET

March 7, 2013


Not wanting to grab the classic falling knife, I held off on my purchase of CET. The stock hit a low, as of now, of 3.69 today. I never imagined such a collapse in price. But CET released its earnings report, or lack of earnings report, and the market took notice.

I still like CET and decided to get off the sidelines and get into play. I bought 600 shares. I picked up some for $3.90, more at $3.75 and I had to settle for $4.00 for the last purchase. From everything I know about the company it still seems a good bet at the right price. The question is: What is the right price? Only time will tell if I have acted wisely.

I like Cathedral Energy. I picked up a little at $5.15 some months ago and now with CET almost back to my entry point, I may buy some more. Let me tell you why.

  • It has a nice dividend of almost six percent which seems fairly secure at this time.
  • Some analysts see CET hitting a target price of $7.00 within a year.
  • I can pick up a hundred shares for just more than $500.
  • Scotia McLeod rates CET a focus stock, albeit carrying high risk.
  • A Google search turned up no big red flag warnings but the stuff I found told me caution is warranted.

If you haven't come across the term "focus stock" before, here is how Scotia McLeod defines a focus stock:

The stock represents an analyst’s best idea(s); stocks in this category are expected to significantly outperform the average 12-month total return of the analyst’s coverage universe or an index identified by the analyst that includes, but is not limited to, stocks covered by the analyst.

If CET continues to lose value, I will probably try and pick up a few shares next week. I won't pick up too many though, I don't want to be overexposed to this technically high risk investment.

Tuesday, February 19, 2013

Are the markets getting a little frothy?

I was going to post this question late last week: Are the markets getting a little frothy? In the few days that have passed between the thought and today, all the numbers I had gathered for my post are clearly out-of-date.

My AUSE (WisdomTree Trust Australia Dividend Fund) is now up almost 20 percent from when I bought it. This is an extra gain of almost three percent in just about as many days. My SLF (Sun Life Financial Inc) is now up 37.37 percent, REM (iShares TR FTSE NAReit Mtg. Plus Capped Index Fund) is up 16.35 percent, and the list goes on: ZUT (up 16.06%), EWH (up 12.55%), RY (up 42.72%) . . . And these are all relatively recent purchases. One of my older investments, Bank of Nova Scotia (BNS), is up more than 106 percent! That is worth an exclamation mark.

Mark Carney, talking about what he sees as a housing bubble in Canada, said recently: "Real wealth is built through innovation, and it’s gained through hard work. It’s not through some magical asset inflation."

The stock market is not housing but I feel about the market the way Carney feels about housing. I applauded his statement when I first heard him make it on a television news report, and my feelings about housing values spill into the markets.

I'm not a market timer. I'll hold on for the moment but I am prepared for a eventual retreat. If the markets get too high, hard to say in advance just what constitutes "too" high, I think I'll try and sell off some of the stocks that seem to have inflated without good reason. I'm looking to have some cash on hand in order to buy after the correction.

To be honest, if history is any indication, in truth I'll buy long before the correction bottoms, but I'll do O.K.

Tuesday, February 12, 2013

Adviser probably has nothing to hide

Sandy Mikalachki deserves better. The investment adviser was featured in an article in The London Free Press written by Hank Daniszewski. Mikalachki sounds like the kind of adviser I admire.

Managing portfolios of half a million or more, Mikalachki is willing to work for a-fee-for-results. He writes on his company website:

". . . a fee is only charged at year end if there is a positive return. The fee is 15% of the return. For example, a year end 10% return would garner a 1.5% performance fee. If the annual performance is zero or negative, there is no fee. In the case of negative performance, like 2008, we would always have to recoup past losses before the performance fee would apply. There is no catch, it is client friendly but we are also confident in our ability to generate attractive returns over time."

But only about half of Mikalachki's clients sign up for the fee for results approach. The other half go with the more common adviser/client agreed management fee. My guess is that these investors are paying an annual charge equal to about one and a half percent of their holdings, in some cases more and in others less.

Why do I say Mikalachki deserved better than the report in the Free Press. Because it is important to not only make money, if you are an adviser, but to beat an accepted benchmark. By keeping his results secret, it makes it appear that there may be something to hide.

The paper tells us a lot about Mikalachki: We know who his father was, we  know who his wife is, we know where Mikalachki went to school, where he worked, but we don't know if his investments beat a benchmark. The paper makes it clear he is honest but they don't make it clear that he is good.

Let's take a look at one respected benchmark for balanced investing. A balanced portfolio is possibly the most common conservative approach to investing. It is favoured because it doesn't suffer the volatility of a pure equity approach. An investor misses the big spikes in gains but also escapes being buried in the hugh trough of losses when the market corrects.

A person investing half a million in the benchmark at the beginning of 2008 would have seen about an 8.79 percent decline in value or a loss of $43,950. The portfolio would have entered 2009 with a balance of $456,050. [Fee for Results: $0]

2009 was a better year with the portfolio earning 9.15 percent or $41,728. It was a good year but not good enough to dig the investments out of the trough. 2010 saw the portfolio starting the year with a balance of $497,778. [Fee for Results: $0]

2010 was not as good a year as 2009 but it did bring the portfolio back into the black with a gain of $43,506. The portfolio had climbed to a balance of $541,284. [Fee for Results: $6193/Portfolio $535,091]

2011 was an even worse year for the benchmark but at least it did not end the year in the red. It made an annualized return of 2.68 percent ($14506), ending the year with $555,790. [Fee for Results: $2151/Portfolio $547,280 ]

There was some recovery in 2012. The benchmark gained 6.4 percent or $34,571 and ended the year with $590,361. [Fee for Results: $2242/Portfolio $580,064 ]

Even if the portfolio matched the benchmark in raw performance, the management fees guarantee it will fall short in the end.

I have a personal benchmark, a balanced mutual fund that I like to watch. I like it so much that I have about 15 percent of my retirement holdings invested in it. It is the TD Monthly Income fund. The most recent MER charged by the fund is 1.48 percent and its annual portfolio turnover is only 6.08 percent.

As you can see, the TD Monthly Income fund beat the benchmark. An investor putting half a million in TDB622 at the beginning of 2008 would have ended 2012 with a gain of $118,314.57 or a total portfolio value of $618,314.57.

As an article examining placing one's investment money in the hands of an adviser, The London Free Press article falls quite short. The big question, the unanswered question, is: "How well has the adviser at the centre of this article done?" Assuming the adviser has done well, putting this information in the article would have only helped the London-based adviser.

Just as an aside, I know an investor with a self-directed portfolio who started 2009 with investments valued at about half a million dollars and is worth about $750,000 today. I am certain other investors have done even better. A lot of money has been made since the crash of 2008.

Wednesday, January 23, 2013

The all important budget

I have a budget. That does not mean I have some time consuming paper monster devouring time and crimping my day to day style. A good budget does just the opposite. It allows one to spend freely, meaning without concern, because one knows the limits.

I use Excel for my budget. It is a good, solid bit of software that is very easy to use. There are lots of budget approaches posted online. Find one that appeals to you and modify it to meet your needs exactly. One strength of Excel is that it can be modified after you have started using it. Nothing is etched in stone. Add columns and rows with rarely a problem.

I got an e-mail the other day from the Morgan dealer, and yes there is still a dealer for my Morgan roadster. He was ordering tires from Europe and needed to know if he should order a set for me. I fired back a reply: "Yes." I didn't even have to think about it. New tires for the Morgan are in the budget.

If we see something nice for one of our granddaughters, we invariably buy it. Why? Because stuff for the granddaughters is built into the budget. The amount isn't open ended but generous. I feel confident spending the money.

How do we keep from blowing our budget? We charge everything that we possibly can. Once a month I update our budget expenses using a printout of our credit charges. I fill in the fields for our actual expenses in the preceding month and note whether we can in budget or not. If we are running a little over, I rein in our spending in the coming month. This rarely happens. One develops a feels for ones budget over the years.

A good place to start developing a feel for budgeting has been posted by the Royal Bank. Follow this link: Retirement Cash Flow Calculator. There is also a good expense worksheet for calculating your cash needs in retirement. This calculator works for both those approaching retirement and those already retired.

Knowing where you are at financially is not difficult but it is important. Knowing one's limits is actually very liberating.

Friday, January 18, 2013

Preparing for the correction

No, I am not predicting a correction. A correction is coming, and that is just a fact. When it comes is anyone's guess but it will come. That is just the way the stock market works. Some up days and some down.

So far, this year has been a time of climbing values. I am up almost a percent and a half since the year began. I can remove enough money from my portfolio to keep bread on my table and heat in my home and still have a portfolio balance larger than I started with at the beginning of January.

So, why the talk of a correction? Because, a correction will occur and when it does you want to be in a mindset to suffer the temporary setback. My portfolio spreadsheet sees seven percent growth every year as my goal. It factors in a reduction in value of based on my estimated RSP withdrawals which I must make in order to pay my bills in retirement. It then tells me what my portfolio would be worth at the end of the year in a perfect world.

Well, in recent years the world has been meta perfect. I'm up just more than 40 percent over my stated goal. This means that I am prepared for a 40 percent correction. This would simply bring my portfolio value in line with my oh-so-positive predicted value.

If I can play the market well, selling before I bottom, all well and good but I know that historically I have not been good at recognizing bottoms. I tend to buy in a falling market and not sell. I'm always thinking that today is the bottom.

It is funny. I never think that today is the top. There is always more to come. I guess I'm the eternal optimist who believes in the occasional correction. It is a good mindset if one is going to put all their retirement funds into the market.

DPF.UN as a possible investment

Now, is there anything that I am looking at as a potential place to stash a little cash? Yes: DPF.UN on the Toronto exchange. This is a closed end fund selling at $3.77. This is quite a drop from its IPO price of $10. Plus, it often sells for less than its NAV.

So, what attracted me? Well, I saw an article in the Globe and Mail that alerted me to its existence. I've had it on my watch list every since. With DPF.UN offering a yield of 13.8 percent, and with me having some dividend cash available, DPF.UN is looking more and more like a fun little play. I won't put too much in, so I can't lose my shirt (I might lose a button or two), but it promises to give a small but nice boost to my dividend income.

DPF India Opportunities Ord can be found on the Morningstar site.

Saturday, January 5, 2013

Knowing when to hold 'em

Are you old enough to recall the lyrics to the Kenny Rogers hit, The Gambler? Rogers sang:

You've got to know when to hold 'em
Know when to fold 'em
Know when to walk away
Know when to run
You never count your money
When you're sittin' at the table
There'll be time enough for countin'
When the dealin's done

Now every gambler knows the secret to survivin'
Is knowin' what to throw away
And knowin' what to keep

Sound advice for those playing the stock market, I'd say.

My wife and I live on the income from our investments. It is not a big portfolio and it has to work hard to deliver adequate income. Recently, as you know if you have followed this blog, I invested in Labrador Iron Mines (LIM). It attracted my attention while still selling for the now lofty price of about two bucks. Then it dropped to a buck and a half. When it got down almost to a dollar, I bought some shares. It continued to drop, finally bottoming out at about four bits.

This was the time for adding to my holdings. I didn't. I simply held my hand.

If you've followed LIM, you know that tens of thousands of new shares were sold recently at a dollar. And if you've been following resource news, you know that China is interested in gaining control of resources in many areas around the globe. If you've kept yourself informed, it should have come as no surprise that China was showing interest in Canada's iron-ore-rich Labrador Trough.

LIM is almost back to the buck and a half value. I'm up about 27 percent. I held 'em. I didn't fold 'em. But, if I'd have followed my convictions, I'd have bought a few thousand shares when the stock was selling in the 60-cent range. If I'd have been a better gambler, if I'd done my research properly, I could have all my seed money back and still have a tidy sum sitting in the game risk-free.

I'm also up on my Cathedral Energy (CET) investment that I wrote about some months back. And like LIM it has had some down days. I could have played this stock better, too. Now, about that money sitting in Penn West (PWT), should I have been averaging down?

I factored a dividend cut into my PWT calculations for the coming year. Recently, I've been reading reports suggesting PWT may not cut the dividend in 2013. Will I buy more? I don't know. I feel financially singed by this stock. Will I sell? Not at these prices. I'll hold 'em and enjoy the dividend while I wait.

[Add from Jan. 10/2013] PWT has had its target price lowered from $17 to $13.50 a share by a well respected analyst. With an estimated effective payout for 2013 of 152% (peers at 143%), I would not be surprised to see a dividend cut. I may have to hold on to PWT for some time.]

One last note on the hold 'em move. As the market dipped in December, it was hard watching my portfolio leaking value daily. I admit to feelings of unease during such pullbacks. But, there did not seem to be a reason to fear that a large correction was in the offing --- and there wasn't. Just days into the new year and my portfolio is up almost six percent from its recent lows. Since a correction is a pullback of ten percent or more, I am building up a nice financial cushion to protect my bottom line.

But the very best time to have invested has past for many of the stocks in which I have an interest. A new year's resolution, a bit late but worth making --- try and get a handle on those feelings of unease during periods of market softness. Don't let them stop one from making good, bold, financial moves.

I must force myself to recall that I bought ScotiaBank in early 2009, bucking the market trend. Today BNS is up more than 100 percent and still delivering a yield of four percent.

Friday, January 4, 2013

XMD: Looking to drop this ETF from my portfolio

iShares S&P Completion Index fund may be dropped from my portfolio if I can find a better place to park the money. The dividend for 800 shares wasn't even twenty dollars. $19.34 was deposited to my account, to be exact. Not good enough. My wife and I cannot live on that kind of income.

Cathedral Energy (CET) interests me and if Penn West has a little dip I can see buying a little PWT for a short period. I'm looking at REM (iShares FTSE NAReit Mortgage Plus Capped Index fund). It has been good to me so far but hear rumbling about some of the companies that are found in this ETF mix. Still, the dividend is amazing, 12 percent today, and as the economy recovers there is a lot of upside potential.

Oh well, there is always that old standby, TD Monthly Income (TDB622). I  have owned it for years and as I approach my 70s it looks better and better. With a MER of 1.48% the cost is a little high but it has such a sterling track record that it is still attractive to a retiree like me. I already have about 15 percent of my portfolio tucked away in TDB622. It pays better than XMD, or at least it is more dependable, so the move would look good on my bottom line, plus it promises a little growth along with an improved dividend.