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.