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).