Friday, December 26, 2014

In the end, it's your decision, your gain or your loss

Some time ago, I bought a few hundred shares of Norbord. I was betting on a recovery in the U.S. housing market driving the shares of the large OSB maker higher. The monster dividend was nice but I had doubts that it was sustainable. I expected to see a cut in the dividend in 2015.

After purchase, the stock popped briefly and then settled into a decline that dragged my losses into the four digit numbers before finding a floor. Norbord, once a market darling, lost its luster and many analysts downgraded the shares.

In October Raymond James cut their price target by two dollars to $22. That same month, RBC Capital dropped its target also to $22. As I recall, even a Norbord booster like ScotiaBank dropped its target price a little. And what happened? The Norbord stock price started on the road to recovery. Today, not two months later, my holdings are again in the black. The dividend is being cut in the new year but I got two good payments before the announcement. Some analysts are even raising the target price on the stock. I'm happy.

The lesson? Others have opinions but there is only one that really matters: Yours. Do your homework. Don't just buy on the advise of others. Have some rules and stick to them. For instance, I have a rule against buying companies that are unprofitable. Almost every time I have ignored this rule, it has cost me money.

And there is another lesson. If you buy stock in a good company and the price drops, don't panic. Sell if the story surrounding the stock has changed for the worse but if the stuff that attracted you is still intact don't be overly concerned with a small fall in share value. Stock prices go up and down. This is just life. No reason in itself for great concern.

I invest for the long term. If a stock is paying a dividend of four percent or better based on its present price, I feel it is paying its way. I hold and I don't lose sleep. Companies like Precision Drilling fall into this category. Until oil prices rebound, I will hold onto stocks like my Crescent Point and take solace from the dividend. In some cases my dividend has shrunk but my faith in these companies has not. There may still be a sports car in my future.

Monday, December 15, 2014

Interesting fact without comment: Household Debt in Canada at all-time high

In the third quarter which just ended, the household debt-to-income ratio of Canadians hit an all-time high. According to Stats Can the ratio hit 162.6 percent up from 161.5 percent in the previous quarter.
The Bank of Canada has expressed concern Canadians may be taking on too much debt. The Bank is monitoring the ratio and watching for signs consumers being overextended. Bank of Canada Governor Stephen Poloz forecasts household imbalances, caused by high levels of debt and a hot housing market, should fall gradually as the economy strengthens.

Despite the record high debt-to-income ration, the ability of Canadians to service their debt has improved thanks to interest rates remaining low. The interest paid as a proportion of disposable income fell to a record low 6.8 percent in the past quarter.

Personally, I hate debt. I take it on when I must but I attempt to pay it down as quickly as possible or, at least, keep the payments low and non-threatening. I track all my expenses by charging the vast majority of purchases and paying the entire bill monthly. I have a budget and my monthly MasterCard bill tells me whether of not I am keeping to my budget.

Right now I am preparing my budget for 2015. I have cut my spending and trimmed my savings plan due to the fall in oil prices. My dividends are threatened. My income may suffer but I will be just fine. I'm prepared -- I hope.

Sunday, December 14, 2014

Holding D.UN in a declining market

D.UN was a stock-picker's darling just a few short months ago. I bought 500 shares for a tax free savings account. D.UN didn't go up much but it did add a few dollars thanks to its generous dividend. Once a month the account benefited from the deposit of $93.33.

Then all began to change. D.UN lost its sheen and fell to a buy and then quickly moved to hold status on many lists. As the price of oil tumbled, the value of the D.UN stock fell off a cliff. The REIT has a lot of Western Canada exposure. I checked a chart and D.UN is still in free fall. Where it will go after market opening Monday is anyone's guess. It may well continue to lose value.

Am I worried? Yes. Am I selling? No. I wanted a dividend and I got an dividend. At the moment that TFSA is earning an annual yield of 7.7% calculated on the original investments. Ignore the loss for the moment. I believe the loss is temporary but it the downturn may linger longer than one would like. Eventually its grip will weaken and the stock will begin to rebound.

My wife and I need to see at least 4% from our investments to balance our books in retirement. D.UN can cut its dividend dramatically and the dividend income for this TFSA will still be 4% or better.

This REIT is about 20 years old. It is a respected name. I don't worry about it being here in the future. It will do just fine over time. It is me that I worry about. With my heart, I am a much poorer bet when it comes to the future than D.UN. Send a dividend and my wife and I will live worry free.

If D.UN drops farther or stays down as I think it might, I will add another 100 shares. At that point, I  will have made my maximum commitment to D.UN.

Friday, December 12, 2014

Reader Right: TD Dividend Growth is a winner

Question: Have you ever researched TD Dividend Growth fund? I met a TD rep today and he couldn't stop talking about it. Its 10 year record is better than TD Monthly Income, which surprised me.

Thank you.

The bank rep is right. Over a ten year period, the TD Dividend Growth Fund is in the lead when pitted against the TD Monthly Income Fund. As the above graph shows, a $10,000 investment gained $1472.63 more in the TD Dividend Growth Fund as opposed to the Monthly Income offering.

This year may be an anomaly. The Year To Date (YTD) figures show the TD Monthly Income is up 6.49% while the TD Dividend Growth Fund has gained only 6.23%. (I don't know if the dividends are contained in these figures but I doubt it. If the dividends are not included, the use of the DRIP would extend the Monthly Income lead.)

Still, it is clear that the TD Dividend Growth Fund has found its footing, this year excepted. When one checks its quartile ranking position, it doesn't drop from the first to the second quartile until one goes back five years. Go back ten years and one finds it was holding a position in the second quartile even back then. Impressive.

The TD Monthly Income fund supposedly presents a little less risk, it is a balanced fund with lots of bonds among its holdings, but when one looks at the numbers the dividend growth fund doesn't look all that risky.

At 2.03%, the MER is a little high with the Dividend Growth fund. But if you agree that all that matters at the end is how much money is being delivered, you will turn a blind eye to the MER and instead focus on the amazing, steady growth in the value of fund units.

I will leave you with this: a chart comparing the TD Can. Index e-Fund with the TD Monthly Income Fund. I picked five years because that is close to the length of time that I have been retired. Note that the Monthly Income find is well ahead of the index-based fund. A low MER did not push the index fund into the lead.

And, if one checks, one will discover the TD Dividend Growth Fund performed even better than the two funds above.

I started this blog in the hopes of connecting with others interested in building a great portfolio, possibly with retirement in mind. When I get questions like this one, I learn and that was my original goal. I wanted to hear from people who could push me in directions that previously I had never considered.

One thing must be said: all this talk about how good the TD Dividend Growth Fund has been is all history. The old maxim that past performance does not guarantee future results still carries weight. That said, it is not just the TD Dividend Growth Fund that must constantly prove itself. Index funds and ETFs also must constantly prove they are the best game in town.

Thursday, December 11, 2014

Index portfolios have done well this year


Read on your blog on some experiments with ETFs. Was looking for your thoughts on TD Canadian Index fund (e-Series) with a MER of 0.33%. Have you ever tried this?


The TD e-Funds are excellent. The MER for the TD Canadian Index Fund-e (TDB900) is not unreasonable, a little higher than some ETFs but on the plus side there are no trading fees. If you are adding to your portfolio regularly, this can add up to a big savings.

One warning, I believe there is an early redemption fee of 2% if an e-fund is redeemed within 90 days of purchase. Also, one must have a TD Waterhouse account to be able to buy TD e-Funds.

At the beginning of this year I set up a number of test portfolios using software offered by TD Waterhouse. My test e-fund portfolio was up about 6.5% today. I used approximately the following mix:
  • 40% TD Canadian Bond Index e-Fund
  • 32.5% TD Canadian Index e-Fund
  • 7.5% TD International Idx Currency Neutral e-Fund
  • 15% TD US Index Currency Neutral e-Fund
  •  5.0% TD Investment Savings Account (TDB8150)
A second portfolio composed of about 15% TD US Index Currency Neutral e-Fund combined with the TD Monthly Income Fund performed even better than the above. Adding the U.S. exposure kicked up growth by a full two percent. No surprise here considering how well the U.S. market has performed this year.

Out of ten test portfolios, the best performer for the year thus far was the Compete Couch Potato portfolio. It pumped up the returns by almost another half a percent over the twin mix above. I must hang my head in shame. This couch potato portfolio demolished me. I own far too much oil and have too much exposure to financials. My portfolio got kicked to the curb this year. I strayed from my plan allocation at my peril.

On the plus side I've got room to spare when it comes to those much needed dividends. As a retired fellow, I need income and my portfolio delivers it in spades. Even a fair shrinkage in my dividend stream will not endanger my retirement lifestyle. I am not going to be forced to sell at fire-sale prices in order to get through 2015. In fact, I see the present softness in the Canadian market as a future buying opportunity. Buy low and all that, you know.

My advice: check out the Canadian Couch Potato blog. Another good blog to check out, especially if you are interested in index investing is My Own Advisor.

Oh well, next year may be better. When oil finds a floor, my portfolio will have a chance to start its recovery. I've learned when oil takes a dive, it takes a lot of other stuff down with it. For instance, REITs with a lot of property in Calgary and Edmonton are being hit. The Canadian banks with lots of loans to Albertans and lots money tied up in the oil patch are also dropping.

This is the year I should have gone the index route.

Monday, November 24, 2014

TD Monthly Income_Answers to e-mail questions

Hi Sir,

Love your blog on investments.

Have a few quick questions on TD Monthly Income, for which you have a soft corner. I was hoping if you could clarify them for me.

The MER is 1.48%, but are there are any hidden costs that we are not aware of?
Also the return it shows of 8-9%, is that after deducting the MER?
The average return of 8 - 9 % of TD Monthly Income, is this coming from the TD website? Is there any chance that you have independently calculated the returns from your own investments in TD Monthly Income and do they match the return posted by TD?

I also like TD Monthly Income but want to verify the returns independently from you.

Would appreciate your input.


Dear Sam:
First, let me make it clear that I am NOT a financial adviser. I am a retired newspaper photographer. I am sharing my feelings about investing and hoping to hear from others who are attempting to run their own self-directed portfolios.

Fund Facts posted by TD contains a lot of the answers to your questions. Follow the link. Or follow this link: TD Helps.

To summarize what you will find:
  • This is a no load fund. There is no charge to buy or sell. But, read on. Note the following:
  • If you cash the fund within 30 days of purchase, you may pay up a 2% early redemption fee. Similarly, there may be a 2% fund switch fee if you switch out of TDB622 too quickly.
  • The MER (Management Expense Ratio) is 1.48%.
  • There is also a TER (Trading Expense Ratio) of .01%.
  • There is an ongoing trailing commission but this is folded into the MER. It is essentially invisible to the investor.
I believed the posted YTD return did NOT include the monthly dividend. A TD rep confirmed this. Here is a link: TD Help. In backing testing this fund I found most years it is best to make use of the offered DRIP, Dividend ReInvestment Plan. Let the dividends accumulate and compound. If you must make a withdrawal, do so at the end of the year.

You may have noticed that the dividend is a little low compared to those paid by other monthly income funds. The reason is that TDB622 has no Return of Capital component hidden within its monthly payouts. I see this as a plus. Follow these links to learn more:
And yes, my calculations based on my investment in TDB622 agree nicely with the numbers provided by the bank.

As a retired fellow, I find this fund very attractive. YTD it has returned about 10.7%. The distribution yield is 1.87%. It is a nicely balanced fund with some 53% invested in Canadian common equities and 37% invested in bonds, mostly Canadian bonds in a mix of government and private issues. The fund has something in the order of 371 investments. Another big plus is the low annual portfolio turnover of only 10.72%. Buy this one fund and buy a great mix of investments at a low cost.

I have found that this fund often outperforms many highly praised index-based ETF portfolios.

Tuesday, November 11, 2014

Patience is a virtue, sometimes.

Patience, it is said, is a virtue. When investing in the stock market this can be a double edged sword. Sell good stocks that are suffering a temporary setback and one locks in one's losses. Be patient and a good stock eventually recovers and one can move on financially intact.

But patiently waiting for a dying stock to reverse course and head for the stars is a fool's game. More and more good money disappears with each passing day. Nortel immediately comes to mind or Yellow Pages or Bre-X Minerals. Even ETF buyers got burned by the Nortel meltdown. Some TSX index funds in reflecting the make-up of the exchange held a lot of Nortel. When it totally disintegrated, these index funds took a huge hit. Nortel is the reason I prefer XIC over XIU. I like the cap limiting holdings, hence the 'C' in XIC.

So, today I sit licking my wounds. I've had a good run. Since getting back into the market some years ago, I've done quite nicely. But this year I lost my footing. I've made some small mistakes, like buying Labrador Iron Mines (LIM), and some big ones, like holding onto PennWest (PWT) and even adding to my position. LIM was a small mistake. I didn't invest much. PWT was a big mistake. I should have sold when I was originally dragged kicking and screaming into the PWT fold of investors.

Years ago I bought junior oil company Canetic Resources. PennWest then bought Canetic in a $3.6 billion deal. I could have sold my Canetic at a profit and moved on. I didn't like PWT. It seemed too eager to grow by acquisition. This can make for a messy financial sheet. If you can't understand it, don't own it. I should have immediately jumped the PWT ship.

At one time PennWest was a $30 plus stock. Today it is struggling to climb back to $5. I calculate that I paid more than $17 a share for the stock I own. I don't see much chance of it ever getting back to that number. That said, if the present reorganization is successful the stock may hit $6 or $7 sometime in the new year. That would give me a 20 to 40 percent gain. All this assumes PWT doesn't find it necessary to cut its dividend again. That would drive the price down even lower.

Thanks to the present low stock price, the dividend is now yielding better than 10 percent. This has analysts worried. David Dyck, the company's chief financial officer,  has tried to calm investor fears by stating that the company "remains confident in its ability to fund its capital expenditure programs and continue to pay a dividend." Is "a dividend" different that "the dividend"?

Should I dump PWT and move on or hold and hope. I'm voting for holding, hoping and re-evaluating. PWT now has decent management. A good broom was taken to the former management. I'd like to see PWT recover to ten dollars or maybe even $12. Good management teamed with a return to $90 or better oil and all my dreams for PennWest may become reality.

Some of my other duds, yes there are still more lead weights dragging down my portfolio, are stocks like Norbord. Norbord is a successful company in a cyclical business. It will come back. I have no doubt. Norbord is a success story just waiting to be told. I just got onboard Norbord too early.

It is looking as if I will end the year easily in the black, even after all my withdrawals. And it looks, to the ever optimistic me, like I have some stocks well positioned to make some nice gains in either 2015 or 2016. I may yet beat the index funds again.

But, I must be patient.

Latest portfolio showing promise

It is too early to tell, but my most recent foray into the world of imaginary portfolios appears to be  a winning allocation but one that may benefit from a little tweaking.

Only opened at the start of the month, two stocks have already been dropped. Both brought in a small profit but both seemed poor choices for a retirement portfolio. One, Norbord, has too many questions swirling about it. Will it cut its dividend? Will the price drop with such a cut? Will housing rebound in the States in 2015. The other, Tech Resources, is a mining operation which is now enduring a strike at a South American mine.

I have added one company to my portfolio with some of the free cash: Precision Drilling. The dividend yield is a little low at 3.1 percent, but the payout ratio is also low. I get worried when the payout ratio climbs above 100 percent. No concern here.

A solid company, in my estimation, it has been on my radar for a long time. The price now is depressed compared to historic values. It may drop farther but it still seemed like a fair time to add a little exposure. I've done well with drillers in the past and this one looks better than some of those others that I owned.

Read more about this latest portfolio and its allocation: Stepping Up to the Imaginary Plate.

Keeping up with the TSX but with less volatility. I'll keep fine tuning.
The present portfolio mix is as follows:

Stocks (about 1.8 or 1.9 percent in each):

  • Ag Growth International Inc (AFN)
  • Baytex Energy Corp (BTE)
  • Dream Office REIT (D.UN)
  • Glentel Inc (GLN)
  • Mullen Group Ltd (MTL)
  • Northland Power Inc (NPI)
  • PHX Energy Services Corporation (PHX)
  • Precision Drilling (PD)
  • Rogers Sugar Inc (RSI)
  • Savanna Energy Services Corp (SVY)
  • Whitecap Resources Inc (WCP)
  • iShares International Select Dividend ETF (IDV) -- 7.5 percent
  • First Trust Morningstar Dividend Leaders Index Fund (FDL) -- 7.5 percent
  • iShares Select Dividend ETF (DVY) -- 7.5 percent
  • iShares Mortgage Real Estate Capped ETF (REM) -- 1.8 percent
  • UBS ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN (MORL) [Actually, an Exchanged Traded Note: an ETN.] -- half a percent
Mutual Funds (balance divided between two funds for a four percent annual yield):
  • TD Monthly Income fund (TDB622)
  • CIBC Monthly Income fund (CIB512)
The cash balance is presently $2012.52. The goal is to have enough free cash in a year that one could safely make a withdrawal in retirement and not affect the actual investment holdings themselves.


The new performance graphing software now offered by TD WebBroker is a great way of getting a handle on a portfolio's volatility. I have an account with WebBroker that I feel has done quite nicely and a check of the performance chart tells the story. It has been a steady performer without any volatility except for one brief dip.

I can compare this steady performance with that of the TSX. When I do, I find that the TSX fell into a deep trough at the time my portfolio was simply suffering a little downward blip. Big falls are hard to stomach. Little ones, not so much.

The TSX recovered fairly quickly and moved above my portfolio on the chart and stayed there for months. Come November the TSX hit another rough patch and fell to just below my portfolio graph line. The TSX has again recovered again but I'm sure I happier with my solid, straight-arrow performance than with the roller-coaster ride offered by the market.

At present, I'm down compared to the TSX but with much less volatility.

Monday, November 10, 2014

Revisiting my imaginary portfolios

Would I have done better investing in ETFs rather than using my present approach -- a mix of stocks, ETFs and mutual funds. To get a handle on this question I designed a number of imaginary portfolios using software available to users of WebBroker.

For a good part of the year, I did quite nicely. But I have had some setbacks. There were two big ones that did a lot to deflate my investment balloon. One was actually made late last year. I sold most of my American holdings: a big mistake. One must adhere closely to one's portfolio allocation. That investment blueprint, carefully worked out, should not be changed on a whim or a fear. I feared what financial havoc the Republicans might cause if they shutdown the U.S. government as threatened. I was snookered by their bluff.

A wise financial adviser at the TD Bank once told me to always have some money in the American market. It dwarfs the Canadian market. Its size and success is not to be ignored. I ignored his advice and I ignored the U.S. market and I missed some remarkable gains.

The other killer was my investment in PennWest. I've never liked PWT. Years ago I liked a junior oil company called Canetic. Unfortunately, PWT also liked Canetic and bought it and I ended up with some PennWest stock when the dust settled. I should have sold those shares immediately. I didn't. I held them, watched them lose value and when they seemed to have reached a bottom, I bought more. I caught the falling knife, as they say.

When the news broke that PWT had problems with its past bookkeeping practices, I began reading about lawyers and lawsuits. I watched the price tumble even farther. That stock has hit lows that were unimaginable just a few months ago.

Never buy a company that seems bent on growing by acquisition. It is too complicated a game. It is no wonder there were problems with the books. Now, I am holding on, hoping the new management will be successful at getting PennWest back on track. There are still a lot of questions surrounding this company. How this will play out is anyone guess. On the bright side there is new management in place and this company may yet become a winner.

So, what was the best investment approach? Drum roll, please. And the winner is:

TD Monthly Income fund (TDB622): A+

Yes, the TD Monthly Income fund easily outpaced the entire field. Despite a MER of 1.48 percent and no American exposure or international investments to speak of, TDB622 won. It had a gain of  9.7 percent.

This soundly trounced the FPX Income benchmark which is up 8.2 percent for the year (Nov. 10, 2014).

Canadian Pension Strategy: A-

While I was still working, one of the editors at the paper gave me a book on investing in retirement. Using that book as a guide I devised a portfolio allocation for retirement:
  • XIC - 10 percent
  • XSP - 10 percent
  • XIN - 10 percent
  • XSB - 20 percent
  • XRB - 25 percent
  • XRE - 20 percent
  • Cash - 5 percent
The big whallop of REITs and the inclusion of real return bonds are what sets this portfolio apart. The cash is shelved in an investment savings account paying 1.25 percent annually. Here I uncovered the first weakness to the imaginary portfolio software. It calculates stock and ETF market increases and adds the correct dividends but it does not calculate the interest earned by cash stashed in an investment savings account like TDB8150. This mean that this portfolio actually earned a few hundred dollars more than the software recorded.

The money weighted return for this portfolio is shown as 8.1 percent. Compared to the FPX Income Index which delivered 8.2 percent YTD, it was almost a photo-finish. A damn fine showing earning an A-. One thing I appreciated about this portfolio was the larger than usual dividend payouts. The XRE holding was responsible for this, I believe.

TD e-Funds Portfolio: B+

In truth, this is not an ETF-based portfolio but a mutual fund-based one. One must have an online self-directed account with TD in order to buy e-funds which have very low, almost ETF-low, MERs.
  • TDB909 - 40 percent (Bonds)
  • TDB900 - 32.5 percent (Canadian Equity Index fund)
  • TDB904 - 15 percent (U.S. Equity Index fund)
  • TDB905 - 7.5 percent (International Equity Index fund)
  • Cash - 5 percent
The money weighted return for this portfolio is 7.8 percent. This fund missed the benchmark by almost half a percent. For this, I dropped the grade to a B+.

Classic ETF Portfolio: B

This ETF-based portfolio was  inspired by investment advice I read some years ago. It required investing in just three ETFs:
  • XIC - 40 percent
  • XSP - 20 percent
  • XSB - 40 percent
Not shown, is the cash. There was a small amount of remaining cash which was placed in an investment savings account (TDB8150).

The money weighted return for this portfolio is 7.5 percent. I dropped the grade to a B+. Still, I hate to admit it, but the Classic is even beating my portfolio. This year is not going to go down as one of my best when it comes to investing. My missteps were few but my PennWest one was a doozie.

I tested some other ETF mixes I but they didn't perform nearly as well as the ones mentioned.

Am I going to immediately dump my approach and buy the TD Monthly Income fund. Maybe I should, but I'm going to wait a year and see if PennWest recovers somewhat. Even a small recovery would go a long way to putting my portfolio back into the game.

In the meantime, I'll test a few other ETF portfolios posted on the Net. A lazy-man's portfolio that holds an American ETF like SDY would be fun to chart. American ETFs were driven higher by the market and the collapsing Canadian dollar. It was a win-win situation for ETFs like SDY and others like it.

I'll keep you posted.

Sunday, November 9, 2014

Norbord: Buy Sell or Hold

I bought some Norbord a short while ago, just before the market began collapsing. At first I had a nice pop and then the stock price weakened. It fell below my entry point and has never climbed back. It hasn't gotten even close.

Now, some analysts are pulling their buy recommendation and replacing it with a hold. When I see the letters h-o-l-d, I read sell. Should I? Should I take the loss and move on. Is there really nothing to see here?

I confess, I like Norbord. One of the biggest producers of oriented strand board (OSB) in the world with 11 operating plants in Canada, the U.S. and Europe, Norbord can pump out 5 billion square feet of OSB a year. Norbord also manufactures medium density fibreboard (MDF), particleboard and furniture. If the market for OSB should strengthen, Norbord has mothballed capacity that it can bring online relatively quickly.

Its announced earning for each quarter this year have surpassed estimates but the spread has been narrowing. Last quarter only a penny separated the estimate from what the company actually earned. The dividend of 10.5 percent, $2.40 annually, is being questioned and a cut to the dividend is anticipated in 2015. Revenue for the past year has been remarkably flat.

My gut tells me the present stock price is under threat. If I sell now, I can buy back at a lower entry point. But, my gut has often been wrong. I need more than just a gut feeling to dump my NBD and move on. I need to know that wherever I temporarily put that money, it will perform better than if I had simply left it alone.

If I have doubts about the dividend, I'm sure many others share my concern. A lot of the damage resulting from a dividend cut may be priced into the NBD stock already. If the fall isn't too great, say five or ten percent, and the dividend is only halved, I will still earn a tidy sum on which to live in retirement. I can ride out the storm.

A look at the fundamentals (key stats, cash flow, income statements) appear to indicate NBD is a successful, well run company in a cyclical market and the cycle is near a bottom. Only the retained earnings number gives me pause. Slashing the dividend should improve this.

Will U.S. housing starts rebound in 2015? Until recently, many thought a recovery was immanent. Now, analysts are tempering their positive positions. If I held a lot of NBD I think I would sell. There should be better places to park my money.

But as I don't hold a lot, I'm going to hold tight. If the price of NBD should collapse, I will give the company fundamentals another look. If all is in the black but under pressure, I may buy a few more shares to push my exposure back to where it was when I first bought the stock. I have no doubt that someday I will sell for a nice profit and in the meantime I hope to be paid for my patience.

(Be warned. I believe NBD has cut its dividend completely in the past. This is a company that appears to have no qualms about touching the dividend.)

One last thing that I should mention: I hold NBD in an account that is presently up 18.25 percent. I hold 32 percent of the portfolio in cash paying 1.25 percent. I'm waiting patiently for a buying opportunity. The bank stock in this account is up about 80 percent at the moment. I am well positioned to be able to buffer any anticipated loss from a drop in the Norbord share price. I can take a 10 percent correction in my bank stock and 20 percent bear attack on my Norbord and still have a profit in the four digits and an annual yield able to meet my retirement needs. There is no reason for a fire sale.

Friday, November 7, 2014

Too Early to Call but a Cushion is Forming

At the very end of last month I created an imaginary portfolio using software found on my WebBroker account site. Being imaginary, I followed my heart and gut instincts honed over the past few years of investing in retirement. So far today my imaginary portfolio is up $3249.

What goes up can also come down. And I have no illusions about this sad fact. Still, being up $3249 means now I have to fall by that amount before I drop into the red. I see this $3249 as a small, but nice, cushion to ease the pain of any coming correction. Unfortunately, such a small amount won't be much of comfort in a true bear market -- one losing 20 percent or more in value.

The big gainers so far today have been:
  • Glentel Inc (GLN) - up $1430
  • Ag Growth International Inc (AFN) - up $1367
  • Whitecap Resources Inc (WCP) - up $1120 [I actually own this stock.]
  • Rogers Sugar Inc (RSI) - up $1112 
  • Teck Resources Ltd (TCK.B)- up $750
  • Even Norbord Inc (NBD) is up $324 [I actually own this stock.]

The biggest losers so far today are:
  • CIBC Monthly Income (CIB512) - down $1190
  • iShares International Select Dividend ETF (IDV) - down $822
At first I was surprised that it was the CIBC fund leading the retreat. This was bought for stability, to minimize volatility. And then I realized that I have a lot more invested in CIB512 than in any one of the other investments. A small change causes a much larger gain or loss because of the size of the CIB512 holding. By the end of the day both monthly income funds were in the black.

Norbord continued to climb. I sold. I locked in the profits and put the money in Dream Office REIT. I believe at today's stock prices, D.UN has more potential. If I'm right, there will be time in the coming year to get back into Norbord. I'm guessing it will cut the dividend and this will cause a temporary drop in the stock price.

I find it interesting that I continue to hold my Norbord in my real account. Why? That is a good question. There is a dividend coming in December and I believe it will pay me a very handsome dividend. I also think there might be more upward potential in the stock. I'd like to have the dividend in my pocket before selling on a bump.

I seem to be more optimistic with my real money and more conservative with my imaginary money. I may learn something about myself and about investing from my imaginary portfolio.

And how did I end the day. My imaginary portfolio was up $4953.

Thursday, November 6, 2014

Whitecap Resources May Be A Core Holding

I like Whitecap Resources. I have the same feel good feeling about WCP that I had years ago for Crescent Point Energy. With the price of oil depressed at the moment, my guess is that this is a fine time to buy a few shares of some solid junior oil companies. And I believe WCP is a solid company. (But be warned: I've been wrong with this call in the past.)

Crescent Point is well off its highs of the past few months and was trading today for as little as $35.25. WCP had a nice little pop today closing at $15.14 as it distances itself from its recent lows. I wish I had added to my position in CPG. I'm waiting for another retreat by WCP before possibly buying more.

The nice thing about having a conservative position in both is that if the price does not retreat, one can take solace in the fact one owns some shares in a fine company. If the price does drop, a conservative position allows one to buy more without taking on too much risk.

With CPG said to be aiming for a $50 share price some day in the future and WCP said by many analysts to be a stock to watch, both dividend paying oil plays will be core holdings for some time to come. (Be warned: Some believe CPG's dividend may be a little too rich, too good to be true. Do a little research on this matter before jumping in with both feet.)

Imaginary portfolio recovers; Now in the black

In my last post I blogged about creating a fictional portfolio to test my thoughts on a suitable portfolio for a retired couple in today's investment environment. I kept bonds to a minimum thinking rising interest rates in the future will play havoc with both ETF and mutual funds that are based solely on bonds.

The first thing to happen to my imaginary portfolio was that it lost five grand of imaginary money. But today it has recovered and is now nicely in the black. I knew this portfolio would be volatile. It is much easier to have the stomach for volatility when there is no real skin in the game.

  • Ag Growth International Inc (AFN) is up $1247
  • Glentel Inc (GLN) is up $1130
  • Whitecap Resources Inc (WCP) is up $450. A real surprise.

There are other positive holdings and some that are still lingering in the red. The worst performer, thus far, is an ETF: IDV. The iShares International Select Dividend fund is underwater by $783 U.S.

The entire portfolio is now up more than $900, no thanks to IDV.

It is going to be an interesting year watching both my imaginary money and my oh-so-very-real retirement money ride the ups and downs of the market.

Wednesday, November 5, 2014

Retiring Without An Annuity

Work, save, retire. Buy an annuity and enjoy. Maybe.

When I started saving for retirement I was in my mid twenties. At some point between then and now, I talked with a financial advisor about what to do with my RSP funds when I turned 65. The answer: buy an annuity. I was told, my RSP should pay about $750 for every $100,000 saved. I was going to be wealthy in retirement. Not!

By the time I retired, interest rates had collapsed. The last quote I received, late last year, said $100,000 would buy a joint life annuity of about $475 monthly. I thought taking a cut of 25 percent in my pension was bad. This is a cut of about 37 percent from what I had been told to expect.

I admit I was financially naive. And I understand that today I may still be holding lots of erroneous beliefs. When one is 40 and holds erroneous ideas about retirement, the disaster is 25 years in the future. A lot can happen in 25 years to avert the coming disaster.

But when one is wrong and retired, the problems are immediate and may well affect the remainder of one's life. I cannot undo what I did in the first years of my retirement. But what I do today, or don't do, is still in my control. And so far, I am taking my retirement funds and investing them in the market, in good, dividend-paying stocks.

Do I have more money available each month than if I had simply tossed all my savings to an insurance company or bank and converted everything into an annuity? No. Even a payment of $475 a month is a return of 5.7%. That is more immediate cash than my portfolio is generating. (That said, the portfolio itself is growing quite smartly. I am up more than 60 percent since I retired in 2009.)

On the downside, and there is a downside, that payment of $475 would remain the same until the day when both my wife and I were dead. With each passing day, our income would be shrinking. According to the Bank of Canada, what I could buy for $475 when I retired would cost $521 today. That's a lot of shrinkage in just a few short years.

Returning to the B of C calculator, someone retiring 30 years ago with an annuity paying $750 annually would now need $1550 in order to have the same buying power. The annuity shrank in in buying power by almost two and half percent each year.

If in 2009, at the start of my retirement, I had invested $100,000 in a joint and last survivor annuity paying say $500 a month or $6000 a year, today I would find I need $6580 to enjoy the same buying power.

If instead I had put $100,000 in the TD Monthly Income fund and removed an amount equal to the annuity payout that first year but increased the withdrawals lock-step with inflation, today I would be drawing about $550 monthly or $6600 annually. Amazingly my portfolio would have grown to approximately $140,166 after withdrawals. (Note: I am removing more than the dividend payments from the TD fund.)

In retrospect, it is clear not buying an annuity when I retired was the right decision. The growth of my actual portfolio after years of withdrawals makes this immediately clear. I don't have to look to graphs on the Internet. I am far better off today than I was when I retired. I was lucky.

The big question is: What will the future hold? Is it time to lock in some of the profits accumulated over the past few years? Is it time to buy an annuity?

Which brings me to the post before this one. Can I put my money into the market in a mix of the bold and the conservative and generate enough money to live while leaving a nice inheritance to my children and grandchildren? Should I simply buy the TD Monthly Income fund? It has been a winner for most of the past 15 years.

Whatever I decide, I am sure at its very core the decision will be a gamble.

Tuesday, November 4, 2014

Stepping up to the imaginary plate

As you may know, I'm retired. I started saving for retirement in my mid-twenties and over the years I fooled around with many investing approaches. Looking back, I didn't do all that well. I retired with but a fraction of my early goal.

I tried GICs, mutual funds, ETFs and the stock market. All had pluses and minuses. GICs were stable but the returns were unremarkable. Mutual funds, for the most part, were too expensive for what they delivered -- except for one little mutual fund, the TD Monthly Income. ETFs were good but in the end they failed to beat the little TD fund that I continued to hold. Stocks were great but then I was very lucky. I always entered the market at the very moment a bull was charging into the financial arena.

In 2009 I retired. I took a buyout. On the downside, I took about a 25 percent cut in my pension and an almost equally big cut to my CPP income. To make ends meet, my wife had to file early for her CPP and thus she also took a huge cut in her monthly payments.

The only bright spot in all this was the buyout. I was able to put a nice chunk into the markets, Canadian and U.S., right at almost the perfect moment. Now, approaching the sixth year in retirement, I've made some missteps and I'm wondering how long until the gravy train goes off the rails.

In the coming year I'm going to track an imaginary portfolio I created using software offered to TD WebBroker clients. Create a portfolio and then sit back and see how it would have done. It is a fine way to test one's investment theories without risking any real money.

Based on the belief that one cannot time the market, I devised my allocation late last week and created my experimental portfolio. I bought 11 stocks, five ETFs and two mutual funds. There is a small amount in a cash account. When the dividends begin rolling in I will move the cash to a TD Investment Savings Account. I don't have the necessary cash for opening such an account at the moment.

So, what stocks did I buy? I bought 11 stocks choosing from both the Active Buy List posted by TD and from the group of stocks ScotiaBank analysts rate Outperform. The 11 stocks are:

  1. Ag Growth International Inc (AFN)
  2. Baytex Energy Corp (BTE)
  3. Glentel Inc (GLN)
  4. Mullen Group Ltd (MTL)
  5. Norbord Inc (NBD)
  6. Northland Power Inc (NPI)
  7. PHX Energy Services Corporation (PHX)
  8. Rogers Sugar Inc (RSI)
  9. Savanna Energy Services Corp (SVY)
  10. Teck Resources Ltd (TCK.B)
  11. Whitecap Resources Inc (WCP)

I put a maximum of about 1.8 percent of my portfolio into each stock, buying each stock in even lots without going over my 1.8 percent limit. For this reason, the actual portfolio percentage invested in each stock varies somewhat.

The five ETFs I purchased and the percentage of the portfolio were:

  • iShares International Select Dividend ETF (IDV) -- 7.5 percent
  • First Trust Morningstar Dividend Leaders Index Fund (FDL) -- 7.5 percent
  • iShares Select Dividend ETF (DVY) -- 7.5 percent
  • iShares Mortgage Real Estate Capped ETF (REM) -- 1.8 percent
  • UBS ETRACS Monthly Pay 2xLeveraged Mortgage REIT ETN (MORL) [Actually, an Exchanged Traded Note: an ETN.] -- half a percent

I have owned all of these ETFs in the past except for MORL. IDV gives me international exposure less the States. FDL and DVY give me exposure to American stocks. REM and MORL are mREIT-based investments. Both pay handsome dividends but come with big caveats. For this reason, I put a limited amount in each. And what do I mean by handsome? MORL is paying a 20 percent yield today. REM pays approximately half that. I've owned REM for years and have never lost money on the investment.

The reminder of the portfolio I divided between two mutual funds:

  • TD Monthly Income fund (TDB622)
  • CIBC Monthly Income fund (CIB512)

The way I divided the investment between the two funds was rather interesting and gave me a chance to use my high school algebra. I wanted the dividend income from the two funds to equal four percent. The TD fund pays less than two percent. The CIBC fund yield percent is about three times that. Knowing how much I had to invest, what amount of money I would remove annually and what dividend yield I could expect from each fund, I created an equation and solved for 'x'.

Using what I had learned, I googled the problem and found a site that explains the math very clearly. Here's the link: Purplemath.

Why would I use two mutual funds rather than readily available ETFs? The MER is about 1.48 percent with each of these funds. This is more than many investors want to pay, including me. So, why did I do it? My earlier experimental portfolios based on well respected, lazy-investor ETF-based investments were easily bested by the TD Monthly Income fund The high MER did not stop TDB622 from staying ahead of the competition.

So, why CIB512? Two reasons: One, it gives more money back. This may not be good if you are young, but for a retiree who wants equity exposure, bond exposure, cash to spend and all in a package that historically resists the ravages of a bear market, the monthly money is very appealing.

And how have I done? It is a little early to say but I confess I am down $5610 since markets opened Monday. Come back in a month and I'll post an update. (And if this interested you, please read my next post.)
One thing this experience has confirmed, building imaginary portfolios to test one's ideas before putting them into practice is a fine idea. 

Friday, October 31, 2014

Beating the TSX and the Index Funds

In the interests of accuracy, I have to add this: I may be beating the purely Canadian index funds but that is of no real concern. It is the overall allocation that is important. I pulled out of the States when the Republicans were threatening to close down the government. That was a portfolio killer for me.

The allocations of my imaginary portfolios were not affected by the politics of the moment. And it was the superior allocation of these imaginary portfolios that drove them into the lead. If I had had the strength to adhere to my own personal allocation plan, I might have won but I didn't and I didn't.

I am working on an updated post that can be found here: Revisiting my imaginary portfolios.
My wife and have our self-directed plans at a couple of financial institutions. One, TD Canada Trust, has a new feature: Performance.

I checked our accounts held with the TD. Each of our plans beat the S&P/TSX Composite Index in the past month and therefore we also beat the index funds tracking the Toronto exchange. When I looked at the graph for the past 12-months, the plan used for the illustrations, the green line, ended the period a notch above the TSX blue line. I beat the index funds again. And, more importantly, I was well ahead of my own, personal financial goals for the period.

My portfolio, the green line, ends the past 12-months above the blue TSX line.

When the past 12-months are examined, the Yanks are ahead; no surprise there. Since I created some purely, online portfolios based on some well-known lazy-investor approaches, I am not surprised that I have beaten the index funds based on Canadian investments. Not one of the index-based portfolios I created has outperformed my real investments examined in their entirety. (Note the amazing lack of volatility in my featured portfolio.)

Still, the Yanks are beating me and that shouldn't be. I should have more exposure to the American market. I can do, and I will, do better.

When I checked some of my other accounts and created a chart going back to end of 2010/beginning of 2011, I found the spread between my investments and the TSX really grew with my investment mix well ahead. The missing US investment really hurt.

Note consistency of high yielding portfolio (green) compared to TSX (blue).

Still, the best thing about my approach, in my opinion, is the constant dividend income. I need dividend income in order to live in retirement. My dividend income is far greater than the dividends delivered by an index fund tied to the TSX.

Come January, this blog may post a portfolio of  high-dividend picks. All must be solid companies with no obvious financial storm clouds on the horizon.

Tuesday, October 28, 2014

Whitecap Resources lookin' good

Whitecap Resources (WCP) looks good -- but, don't take my word for it. Do your own due diligence. I've been wrong in the past and I'll be wrong again.

That said, TD put WCP on their Action List when the stock was going for $16.03. And the ScotiaBank has WCP rated as Sector Outperform. I've noticed that these investment 'tips' are not always right but they do point one in a direction-of-interest. In the end, the decision to invest rests with the investor.

I picked up 1000 shares at $14.76. But first, I checked out the Fundamentals. I paid particular attention to the Financial Statements. WCP looked like a keeper to me. Like I said, do your own research and see what you think.

With this purchase, my annual income just jumped by $750. With a payout ratio of only 59.65 percent the dividend looks safe. With a safe dividend, a drop in share value can be endured. If the share cost drops enough, and I hope it doesn't, I still have enough cash on the sidelines to buy another batch of shares if the price is right.

If a retreat should occur, I'd love to pick up some of this on a dip for my Tax Free Savings Plan.

Caught a fellow on BNN. He said he believed oil prices still had lots of room to fall. He said he had worked on the exchange floor for years and he sees $80 oil as expensive oil. Furthermore, Enbridge released a statement today warning oil may remain at the present level for the next two years. All this says take care with oil patch purchases. A good, solid, black bottom line may be more important today than ever.

I still feel good about WCP as an investment to hold.

Norbord share price fails to hold recent gains

The share price of Norbord (NBD), the giant, multi-national manufacturer of OSB (oriented strand board) and MDF (medium-density fiberboard), dropped at the opening today by more than six percent. I believe Credit Suisse announced it believes NBD will likely cut its dividend after its next 60-cent payout. This talk preceded this morning's price drop.

This came as no surprise. According to the info found on TD WebBroker, the NBD dividend hits a payout ratio of 123.4 percent . Whenever I see this ratio climb above a hundred percent, I fear there is a danger of it being cut. Wait and see.

Norbord has been paying an annual dividend of $2.40 or 60-cents a quarter for a rate of 10.17 percent. Anytime a company pays a dividend in the double digits, I have doubts about the long-term future of the payout. But, doubts or not, I own Norbord. I paid more than I should have -- $26.24 -- but I'm not in too deeply. The loss is quite manageable. And by the time the dividend is cut, if it is, I will have recouped $480 of my investment.  (If the dividend is only halved, I'll be happy.)

Norbord has a checkered history when it comes to paying dividends. If dividends are all that are attracting one to NBD, walk away. Nothing to see here. Nothing but a profitable company, as far as I can see from a quick reading of the net income numbers.

Norbord is a bet on the recovery of the housing market in the States and Europe. For me, the question isn't will the housing market recover, the question is when. When it does, Norbord will be there to profit and I will there for the ride. (Some see NBD eventually hitting $31 or more.)

And if a chap interviewed on BNN is right, the U.S. housing recovery may arrive in 2015. He sees a lot of pent-up demand supported by a steadily improving economy in the States. If he is right, the wait for an NBD recovery may not be all that long.

Here is a link to an article running in Seeking Alpha: Norbord Can Be A Value Play on the US Housing Market.  Note that the writer has a declared entry point: At under $22 he would add to his position.

Tuesday, October 21, 2014

Taking a breather from the corrrection

If that was a bear, it has gone back into hibernation. My retirement portfolio has gained thousands in the past few trading days. It looks quite likely that despite having to remove dividend money to live, my retirement portfolio will end the year with a nice gain.

I like my portfolio to make enough, at the very minimum, to end the year with the same amount it started plus enough to neutralize the effects of inflation. This, of course, is after I have removed some money to cover living expenses in retirement.

The rule-of-thumb governing withdrawals is: Only remove four percent per year if you want your portfolio to last. Good rule but almost impossible to follow. When my wife turns 71 we will both be forced to convert our RSPs into RIFs and remove a legislated amount each year. The very first year we must remove 7.38 percent this withdrawal rate will climb higher with every passing year. The government does not want RIFs to be going strong when folks are hitting 90. The government forces seniors to bleed retirement accounts until they wither away.

I'm trying to move as much money as possible into my wife's and my Tax Free Savings Plans. The money that one removes from either an RSP or a RIF counts as income and can trigger the old age security claw back if one has almost any company pension at all. Earn more than about $70,000 in retirement and you are in claw back territory. For many this is easier than you may think.

The Guaranteed Income Supplement (GIS) is paid to low-income Canadians age 65 or older. Like OAS, GIS may also be reduced, or even totally eliminated, by income generated by removal of funds from either an RSP or RIF.

For some people, paying income tax up front and sticking their retirement savings in a Tax Free Savings Plan rather than an RSP is a better way to save for retirement. I wish these had existed when I was saving for retirement.

As I said earlier, it is not too late to start building a TFSP. My wife's plan, is up more than 12 percent in just more than a year despite the recent pullback. It is a small plan and all the money is invested in one stock: D.UN. As the dividends come in, I immediately move the funds into a TD Investment Savings Account (TDB8150). Fully 12% of the plan is now in cash earning 1.25 percent. As the cash pours in the volatility of the plan drops, as well as the yield. Today the total plan is delivering more than seven percent. Nice.

Soon I will move the cash into the highest paying GIC I can find. This will kick the yield up a small notch. And folk say you can't get a good yield today. I'm happy. With time, this plan will get less and less volatile as the cash component grows with monthly dividend income.

Just a side note. Some are calling for D.UN to hit $35. It is at $28.48 as I write this. I'm in no hurry to sell. I can wait for this stock to gain in value. When it does, my wife will make out like the proverbial bandit.

Saturday, October 18, 2014

Do you feel lucky, punk?

It is not quite the quote from Dirty Harry but it does capture the feel. And sometimes, I feel that this somewhat addled version of Harry Callahan's question can be applied quite nicely to investing in the stock market.

A friend, who I can only describe as wise, told me he didn't see this recent market correction coming. He was blind-sided. I have nothing to add other than I didn't see Thursday's and Friday's pop in my portfolio value coming either. I may yet end the year in the black, even after my withdrawals to supplement my retirement income.

Which brings me to the subject of today's post: Barbell portfolios.

A barbell approach to investing puts a whack of one's money in something risky and balances that risk with a whack of money in something with a more solid financial footing. At the start of the year I devised what I felt might very well prove to be a great portfolio for 2014. My imaginary portfolio looked like this:

  • 10% MORL
  • 20% REM
  • 40% XMI
  • 10% XSB
  • 10% VSX
  • 5% XRB 
  • 5% cash placed in TDB8150 earning 1.25%

My imaginary portfolio opened the year with $800,000. Today this has grown to $896,507.30. Very nice and this is after the recent correction put many of my other imaginary portfolios into the red. Many of those others were index-based portfolios using ETFs and came highly recommended by financial bloggers.

I checked the Barbell portfolio figures and they are slightly in error. In reality such a portfolio would be worth a little bit more. The interest paid by the TD Investment Savings Account did not enter into the portfolio software calculations. 

Click on image to enlarge. Five percent cash would not fit on screen grab.

What make this portfolio interesting is that I attended a number of investing lunch-time seminars at the main TD Canada Trust branch in downtown London. Some of these seminars examined ETFs and how to determine which ones gave indications of being winners. 

I tried to question the speakers on REM and MORL, mostly focusing on REM. I've owned REM for years and it has rewarded me handsomely. Not one of the investment experts knew anything about REM or about MORL. I find it difficult to believe they knew nothing about mREITs. Heck, mREITs are discussed on the Business News Network (BNN). Both REM and MORL are based on mREITs. REM is an ETF amd MORL is an ETN. An ETN is an exchange-traded note. ETFs are exchange-traded funds.

Come January, I'm going to rejig this portfolio. It will be interesting to see how the 2015 portfolio performs. Being imaginary, I will take another bold approach. And, if REM every takes a dive, I may pick up some on the dip. REM is said to be a low risk ETF and slowly I am beginning to believe this just might be true despite the lack of a blessing from the financial high priesthood.

Friday, October 17, 2014

Correction? Bear Market? What to do?

I keep all my portfolio/investment records on an Excel spreadsheet. When I get to seeing the past with rose coloured glasses, I can quickly look back and see that all was not a smooth ride to the top. For instance, I had a year when I ended those 12 months with about 22 thousand less dollars than I had begun the year.

That year I had removed about thirty thousand to live. If I hadn't made that withdrawal, I would have ended the year in black like all the others. But I do have to live, maybe not as well as I did, but removing money from a retirement account in retirement is not just expected but demanded.

So far this year I have removed about 25 thousand from my portfolio in order to cover living expenses. Even with that big draw down, my portfolio is still up today by some eight thousand dollars. Yesterday alone it recovered about $1800 from its recent low.

Will I remove more from my RSP before year's end. I don't know. If such a move puts my portfolio in the red, I probably won't. I'll leave the money invested and possibly invest much of the available cash.

At times like this it is good to have some stocks on one's investment radar. I am following:

BEP.UN (Brookfield Renewable Energy Partners LP) Up 2.8% today, yielding 5.1%
BPY.UN (Brookfield Property Partners LP) Up two thirds of a percent today, yielding 4.6%
CPG (Crescent Point Energy Corp) Up 3.9% today, yielding 7.2%
EMA (Emera Inc.) Up half a percent today, yielding 4.4%
FTS (Fortis) Up half a percent today, yielding 3.7%
HR.UN (H&R REIT) Up a quarter of a percent today, yielding 6.3%
SJR.B (Shaw Communications Inc.) Down a quarter percent today, yielding 4.1%
XUT (iShares S&P/TSX Capped Utilities Index ETF) Up a quarter percent today, yielding 6.3%
WCP (Whitecap Resources Inc.) Up more than half a percent today, yielding 4.9%

If the market takes another big dip, I'll buy more good stock and enjoy the increased dividend payments in the coming years. If the market recovers, I'll remove more cash to cover living expenses and take my lovely wife out for dinner and a movie.

Wednesday, October 15, 2014

Is it about time to buy?

The Globe and Mail headlines said it all:
TSX suffers another harrowing day, takes triple-digit dive.

A related article sported the headline:
The (slow) rise and (gut-wrenching) fall of the TSX.

The headlines said it all but all was about the Canadian market. My portfolio actually gained today. I ended the day with almost a thousand more bucks than I started. I'm still in the black for the year. Maybe, just maybe, this bear will run out of steam before I run out of profits to feed the damn beast.

Is it about time to buy? Maybe. I think I'll pick up a little something conservative. But, I'm keeping what powder I have dry in anticipation of more and bigger bargains.

Tax Free Savings Plan still in black

When I sold my Morgan Roadster I put $15,000 from the sale into a tax free savings plan for my wife. I promptly bought 500 shares of D.UN, now known as Dream Office REIT. The remaining cash I later moved into a TD Investment Savings Account: TDB8150.

Now, in a little less than a year, her plan looks like this: a $39.71 loss on the REIT holdings but an overall gain of $899.92 for the total plan. My wife's TFSP remains up 6 percent in a falling market.

How is this possible? Simple. D.UN pays $93.33 every month. In ten months she has made $933.30 on D.UN alone.

Do I think this plan will remain in the black? In this collapsing market, I have my fears but I know that almost $2000 is sitting in oh-so-safe cash and this is enough money cover one month's income shortfall. My wife an I are retired and our retirement income needs an infusion of about $2000 each money to balance our books.

If the the markets descent into bear territory, my wife and I will probably be bold and put that money to work in the market rather than tapping it for day to day expenses. Whatever we buy will a dividend paying stock.

And D.UN is not alone in the Canadian REIT world at having offered a relatively safe haven for one's investment dollar. A few months ago I picked up 1300 shares of Chartwell Retirement Residences REIT. Today that holding is still in the black by $572 or up by 4.21 percent.

Chartwell doesn't pay what Dream does but it does deliver a nice monthly dividend. I see $58.50 each month from this investment.

I find that in a shrinking market holding equities like D.UN and CSH.UN help me weather the financial storm. And I am very curious to see how my American ETF, REM, based on mREITs, will hold up with this downturn. Today REM is still up about 5 percent from my entry point and is yielding more than 13 percent annually.

As long as my dividends are not slashed, life will continue unaffected by the market turmoil.

Sunday, October 12, 2014

TD Monthly Income beats couch potato portfolios

While still a young man back in the late '60s, I bought a two-seater English roadster, a Morgan. Sadly, recently I had to sell my lovely little car. Doctor's orders. But, I have kept many of the friends I made while driving the beautiful heritage sports car. Yesterday I bumped into a couple of those friends and we got to talking about our investments and our portfolios.

We should have kept our talk to cars and not stocks. Cars like Morgans are proving a better investment than equities at the moment. My friend confessed his portfolio has given back all the gains accrued since last April.

He said he was still considering going the "couch potato" route when it comes to investing. He has read a lot about the Canadian Couch Potato approach and the claims are enticing. Invest and forget. Keep management fees low and maximize profits.

I told him I'd been looking at the couch potato approach for years, too. I've even owned some of the recommended ETFs. I have not been impressed. Last January I went so far as to set up some imaginary portfolios using software offered by TD Waterhouse. Today not one of those ETF based portfolios is besting my personal portfolio, a mix of mostly equities with a few ETFs and a couple of mutual funds.

Let's take a look at the Canadian Couch Potato. If you click the link, you will discover that Option 1 of the couch potato approach is not a mix of ETFs but a single mutual fund: Tangerine Balanced Portfolio (INI220). With an MER of only 1.07% this low cost fund closely mimics the portfolio allocation of the couch potato portfolios.

If you had put $10,000 into INI220 at its inception, Jan. 10, 2008, you'd have $13524 today (Oct. 12/2014). Not bad but not great either. If you'd have put your ten grand in the TD Monthly Income fund (TDB622) you would have a thousand extra dollars according to figures provided by the Globe and Mail.

So much for Option 1. You saved money on the management fee but it was a costly savings. In this situation, spending approximately an extra half a percent would have put an extra grand in your pocket.

Let's move on tho Option 2 which suggests using TD bank e-funds to create a low maintenance cost portfolio. A mix of 20% each of TDB900 (Cdn. Idx), TDB902 (U.S. Idx), TDB911 (Int'l Idx) plus 40% of the Canadian bond fund TDB909 is the couch potato recommended portfolio. In this case your ten thousand would have grown to $13484.19. For all the ballyhoo about index funds, the Tangerine Balanced Portfolio fund bested this mix of index funds and, of course, the TD Monthly Income mutual fund beat both.

So much for Option 2. It was beaten by two mutual funds: Tangerine Balanced Portfolio and TD Monthly Income fund. It seems saving money on management fees does not always translate into greater investment success.

How, did the other options do? I don't know. I haven't done the calculations. That said, the Complete Couch Potato puts 10% of the portfolio into real estate in the form of the ZRE ETF from the Bank of Montreal. I am familiar with ZRE and I am not impressed. Why? It takes an equal weighted approach to investing in REITs and there are REITs I personally don't want to own. Buy an ETF like ZRE and you may own some stuff you don't want to own.

If you are going to insist on buying an ETF for your REITs exposure, I like the iShares product XRE. XRE has climbed from $15.10 to $16.10 in the same period. An increase of 6.62% compared to 6.4% for ZRE -- essentially a wash -- and both ETFs yield approximately 5%. So why do I like XRE better, iShares take a market weighted approach rather than an equal weighted one. Less of the investments I don't want to own are hidden in XRE.

I am not putting all my money in either ETF. I am buying some REITs directly. More bang for the investment buck. The extra volatility is offset, for me, by the increased potential for capital gain and increased monthly income. Dream Office REIT at its present price looks good to me as does Chartwell Retirement Residences. H&R Real Estate Investment Trust is anther REIT, I believe, is worth a look.

I dislike ZUT, the utilities ETF from the Bank of Montreal, for much the same reason that I dislike ZRE. The equal weighted investment approach. I don't want to own even one share of Just Energy. Yet, if a buy ZUT with its equal weighted approach I'd get more Just Energy stock than I would ever want in my portfolio.

Ten years ago, Just Energy was at $16. Five years ago it was at $13.60. Today it has dropped to $4.98. I feel the high dividend of Just Energy comes at a very steep price. In March of this year ZUT had 9.6 percent of its money in Just Energy and only 8.4 percent in Fortis. That allocation is just nuts, in my humble opinion.

Why? Well, ten years ago Fortis closed at $15.63. Today it is hitting $35.37. The Fortis dividend can be counted upon and should grow over time. I'd suggest one could do better dividing one's utility money between Fortis, Emera and a couple of other strong utility stocks and leaving it at. This is one case where I see the ETFs offering increased risk because of the myriad number of holdings in the ETF. Buy a sampling of the strong utility companies and leave the remainder to others.

If you really must have an ETF, I'd go with XUT. About a full 20 percent of the iShares utilities ETF is invested in Fortis. Check out the top holdings in XUT. I think you may be pleasantly surprised by how heavily weighted it is toward the hight quality utility equities. I may still buy a XUT if I'm feeling a wee bit lazy.

Do you recall the Money Sense Classic Couch Potato portfolio? It was an equal mix of XIU, XSP and XBB. If you had put a hundred grand in this ten years ago, you would have $143,179.38. Not bad but if you had instead put you money into the TD Monthly Income fund you would have $144,411.50. Not a big difference but I can do a lot with $1200 plus dollars.

If I did the calculations for all the different permutations of no-brainer portfolios, I'm sure some of them would come out ahead but there is no promise that they will continue their winning streaks. And some of them have been modified over the years. Clearly, even the folk behind these portfolios have modified their approach with time.

My portfolio is very volatile. When the markets are falling, I am sure it falls farther the TDB622. This is not the time to sell my stock and move to the TD Monthly Income fund. When the markets recover, my volatile portfolio will climb and then it will be time to rethink investing more in TDB622. I am leaning toward increasing my TDB622 allocation and upping my portfolio exposure to REITs and utilities with some equity holdings in the hopes of kicking up the dividend payout while staying away from extreme volatility.

Maybe I'll get a chance to blog more on this later but for now I'm going to post this and get it up early even if only half written. I want to partially answer some of the questions raised by my Morgan-owning friend.

p.s. In doing my last calculations I made sure that I was NOT reinvesting the monthly dividends from the TD mutual fund. That would give the fund an unfair advantage. If you are interested, if the monthly payments had been reinvested using DRIP (dividend reinvestment plan), today that original $100,000 would be worth almost double at $198,491.30. Amazing.

And if you had retired early and were taking 4% ($4000) out of the plan annually, after removing $40,000 in the last decade you would still have $143,886.13 in the plan.

Monday, October 6, 2014

What the TD Monthly Income Fund teaches us

The TD Monthly Income Fund inception date is June 29, 1998. I was already 51 at that point and had been saving for retirement for more than two decades. I can't say for sure how much I had saved by 1998 but let's be conservative and guess I had been putting two and a half thousand aside for 22 years. I think it is safe to say that I would have stashed away more than $80 thousand by mid 1998.

If I had moved all my RSP savings into new TDB622 mutual fund at that time and upped my monthly contribution to $270.84 or $3250 annually, I would have had about $220,000 when I took early retirement back in 2009.

With early retirement came a cut in my company pension and a big cut to both my CPP retirement payments and to my wife's as well. We had to claim early and accept the cuts if we were going to be able to live at all in retirement. Lessening the financial pain was a nice buyout package. A lot of that money was deposited immediately into my RSPs.

Today, I'd have about $455,000 in my RSPs and that is after removing $12,500 annually since retiring in order to live -- and it gets better. Today I'd feel comfortable upping my withdrawal to $14,500 annually.

When my wife and I turn 71 and we must begin withdrawing money from our retirement savings at the enormous rates insisted upon by the government. If my money were in the TD Monthly Income, I would have something in the order of $530,000 in accumulated RSP savings. And remember, that is after upping my withdrawal amount to $14,500 annually.

So, what do I take away from this: A balanced portfolio works very well. A balanced allocation is a great way to play the investment game and something like the TDB622 is an easy way to achieve a good, balanced portfolio. It is a little expensive but only a little. Historically, it has delivered good value for the money with the MER a little less than 1.5 percent.

I know a lot of investors are quite enamored with using ETFs to enjoy a low fee entry into monthly income territory. For this reason, I designed a number of  ETF portfolios to mimic TDB622 and let my investment software track the performance. Nothing walloped the TD Monthly Income fund.

One of these well known inexpensive investment approaches uses the TD e-funds. These index funds charge a MER of about .55 percent. In this chap's portfolio, 20% goes into each of the following: TDB900, TDB902 and TDB911. 40% is placed in TDB909.

An $800,000 portfolio invested in January 2014 using the above mix would be worth $848,400 today. The same investment in the TD Monthly Income fund would be worth $869,520. The above easy/cheap portfolio performed very well -- better than many that I put together. Yet, it failed to beat the TD Monthly Income fund by a solid margin.

Come up with your own easy/cheap portfolio mix and back-test it. You may be amazed. For another view on monthly income funds here is a link: My Own Advisor blog.

Personally, I am no longer quite so enamored with ETFs and their ilk. I still like 'em but I don't bad mouth all mutual funds nor take offence at paying a smallish fee when a very nice return is delivered with solid consistency.

Monday, September 29, 2014

Not a correction, yet, but a pullback for sure

My portfolio is down. It feels like it is down a lot but it really isn't. If one is going to invest in the market, one has to be prepared for setbacks and I was prepared -- mentally and financially.

Most of my holdings pay a nice dividend and the solid cash flow is very comforting. I have confidence in most of the dividends and as long as the monthly dividend train continues I can live with both downturns and corrections. I think of a correction as a pullback of 10 percent or more.

Take my wife's tax free savings plan. It doesn't have a lot of savings in it at the moment. I sold my English roadster, a Morgan Plus Four, and deposited $15,000 from the sale into a registered tax free savings plan taken out in my wife's name.

I bought 500 shares of Dream Office REIT, D.UN, a REIT involved with the rental of commercial space. The share price was up for most of the past year but today it is down. Yet, despite the loss in share value, my wife's account is up almost 6 percent. Why? The monthly dividend is why.

Overall, the market has been absolutely wonderful since I left the work force. Today, thanks to the increase in portfolio value over the past five years, I can get by with removing less than the 4 percent which is commonly accepted as the safe removal limit for RSP savings.

Recently I have read a lot about not putting too much faith in dividends. I don't follow this reasoning. In my situation, as a retired fellow with a retired spouse, dividends allow me to live without being forced to sell any stock at low prices and thereby lock in my losses.

Most downturns and corrections are short-lived. They are over and the market is back in growth mode in a matter of months. In my case, I can wait almost five full years before I must start taking out the government mandated withdrawal amounts.

With such a large time buffer, I continue to sleep well at night and that is the biggest test of all.

p.s. If D.UN drops enough in price, I may pick up another 500 shares.

Monday, August 25, 2014

Markets on a roll

The markets are still on a roll and to a certain extent I have missed some of the action. Am I sorry? Not really. Having a good chunk of my money sitting on the sidelines earning a little interest means that if there is a correction, I am ready.

Having the majority of my money invested in the market means I am enjoying some nice returns. My Aston Hill Financial is up more than 12.4 percent since I bought it just weeks ago. My Bank of Nova Scotia which I bought years ago is up 158 percent this morning. My Chartwell Retirement Residences is only up about eight and a half percent but it does pay a nice dividend and so I am quite content with my investment in this Canadian REIT.

One big shadow is Norbord. It is still down about ten percent since I bought in. Today some U.S. housing numbers are to be released. If they are positive, I might see NBD climb back up to where I bought in. I've decided to be patient with NBD. At some point, it will take off and I want to be there for the ride. In the meantime, it pays a nice dividend as a reward for waiting.

I hold all my NBD stock in my tax free savings plan. I only started my account about two years ago. The plan as a whole is up 24.375 percent. When I view my NBD investment in the context of the entire TFSP package, it does not seem a big problem. If one is going to invest in the market, one has to keep the big picture in view and not get too hung-up on this investment and or that one.

The only other acquisition I have made in the past year and still have on my books is Dream Office REIT (D.UN). Like Chartwell, it has climbed a little but the gains have come mostly in the form of the monthly dividend. D.UN is a classic dividend paying investment. Someday, when my RSPs have been weakened by withdrawals demanded by government regulations, D.UN will form a core holding in my income generating portfolio of stocks and fixed investments.

Am I looking to buy something soon? I'm always looking but I would not be surprised if I sit tight and enjoy my present holdings while waiting for the inevitable correction.

Wednesday, August 20, 2014

Attempting to lower risk of suffering a large loss

About a year ago my wife opened a tax free savings plan with $15,000 in seed money from the sale of my antique British roadster: A Morgan Plus Four. I divided the sum to invest by the going share price of Dundas Reit shares and bought 500 and kept the remainder in cash.

In total, she has made 8.93 percent on her initial investment and today cash makes up almost 11 percent of her total plan. She is enjoying a cash return of 7.63 percent based on her original contribution. I consider anything above seven percent a good return. Both my wife and I are satisfied. We are in no rush to invest the balance.

By the way, the cash is sitting in the TDB8150 investment savings account fund. There are no hidden charges and the account is paying 1.25 percent currently. This is not great but it helps to keep the cash from withering under the constant attack of inflation.

At some point, I will move the cash from TDB8150 to a bond fund - possibly one of the iShares offerings. But before than happens, I want to see interest rates climb somewhat.

The nice things about all of this is that this tax free savings plan is slowing evolving into a nicely balanced investment. At the moment the mix is 89 percent equity (risky) and 11 percent cash (safe).

At some point in the future, my wife will need to draw on this account to live. We need thousands every month to keep our books in the black. It is not hard to imagine this one account, with no more than its original $15,000 deposit, kicking out enough money annually to enable my wife to balance the books for one whole month. And she will be able to do all this without ever touching the principal which will be growing with inflation.

The really nice part here is that the money is tax free, it goes much farther, and the plan does not factor into the old age security clawback calculations.

Friday, August 1, 2014

My investments allow me to live

My portfolio is down today. I don't care. Stocks, ETFs and mutual funds are volatile places to put one's money. If you can't take the ride don't get on a financial roller coaster.

I know some really bright people who stay completely clear of the market. If they got up today, as I did, and found they had lost more than five thousand dollars in the market overnight, they would freak.

I can't say I don't pay any attention to the ups and downs of the market but I can say I pay more attention to my dividend earnings. For instance, last month my largest portfolio returned $1566.59 in cash. I haven't checked my other accounts but I assume they performed similarly.

I'm retired and so is my wife. We need money to live. Unfortunately, we both retired early and we took a financial bath because of that fact. My company pension was cut and it wasn't all the good to begin with. Both our CPP payouts took big hits. Without substantial RSP income, we would be in deep trouble.

If I didn't have the dividend income to balance our books, I would not sleep at night. Heck, I'd have a hard time affording the bed and the roof over our head would most certainly change. But, I do have the dividend income. When the market goes down, my wealth diminishes but my income stays essentially the same.

As my dividends pile up, and as I sell under performing investments, I reinvest in more stocks and ETFs that I feel stand a good chance of appreciating over time and will pay me a nice dividend while I wait.

I try not to but too many eggs in one basket; I don't put too much of my retirement funds in any one investment. I can't tell the future. Good companies today can become the bad companies of tomorrow. Never forget the lesson of Nortel.

That said, almost all my investments go up and down. Down times are expected even when they are unexpected. Which brings me to Norbord. NBD is on a downward spiral. Where it will stop I haven't a clue. But, if it drops below $20, I'll buy a little more. Not a lot but a little. I'm not fully invested in NBD at the moment. I thought it was a little expensive and I was concerned about the its recent continuing loss of share value.

On the other hand NBD pays a handsome dividend today and promises to keep it at its present level for the rest of the year. Unlike some other investors, I like the fact that Norbord is willing to cut its dividend if the payout ratio gets too high. I want a healthy company and I see dividends that are set too high as unhealthy.

Norbord shares have lost money but they have not lost their place in my portfolio.

Monday, July 28, 2014

Boldness plus diversity makes my portfolio successful

I own REM, the iShares Mortgage Real Estate Capped ETF. It has been a solid investment. My present holdings are up 11.91% and I'm enjoying a 13.38% dividend. Yet, I have never spoke with a financial adviser who knew anything about REM. When told it was a play on American mREITS, all immediately advised me not to have anything to do with REM.

My own personal digging convinced me that REM was an ETF on which I was willing to gamble despite having only a one star rating. I've now owned REM off and on for years. Each time I have sold, I have got out with a small profit. I figure, between dividends and the profitable sale of units, I have gotten more than 60 percent of my original investment back.

I don't have too much money in REM. A little more than one percent of my portfolio sits in the little ETF. It was a small gamble that has paid off handsomely. More than three percent of my dividend income comes from REM.

I have far more of my portfolio in conservative investments like the Canadian banks for example. My Royal Bank stock and Bank of Nova Scotia shares have performed very nicely and are paying dividends that one can bank on. I'd say about twenty percent of my dividend income comes from Canadian Banks.

Then there's the oil patch. Sunoco, Crescent Point and other companies involved in gas and oil extraction and transport. More than ten percent of my dividend income from this group of companies.

I also have a couple of mutual funds. One from TD and one from CIBC and both are monthly income funds. Almost a full thirty percent of my dividend income is supplied by these two funds alone. I hate paying the MERs  but they are relatively light hits for Canadian mutual funds. Another nice feature of these two funds is that they don't tend to dip all that much during periods of severe market correction.

And then there are REITs. I read a piece by a very well known and very well respected retirement fund manager who said own REITs -- lots of REITs. Retirement funds need income and REITs are cash cows. Another big chunk of my dividend income comes from Canadian REITSs.

If the above doesn't look all that well diversified, you are right. Oh, I have some utilities and some insurance companies and ETFs that invest in foreign markets but I really need more diversity. For that reason I have bought some Norbord. The dividend is too high for my liking but even if cut it will be a nice addition to my dividend income.

Since buying Norbord, it has wilted. I have lost oodles on this one. It happens. All investments don't immediately head for the stars. Am I going to sell? No, I don't think so. I have a very small investment in NBD. I would be comfortable with even more money sitting in the OSB producer. If it drops a full twenty precent from my entry point, I'll consider buying more.

I didn't just buy NBD. I bought diversity. I believe it is an investment that will eventually reward my patience. In the meantime, Norbord will pay me a nice dividend in return for my willingness to wait.

Monday, July 21, 2014

Overall portfolio holding: recent buys falling

I'm holding onto my older holdings and smiling. At least my older holdings are not collapsing in value. My most recent investments are either treading water or falling dramatically.

I bought some D.UN for both my wife's portfolio and for mine. Hers has done well. Thanks to the monthly dividend, she is up very nicely. She is well positioned to handle a correction with aplomb. I'm down. I've been down almost from the day I bought my D.UN position. The dividend is nice but a little appreciation in stock price would be nice.

My Chartwell Retirement Residences is hanging in there but it certainly hasn't taken flight. Love the dividend but at this rate it will take some months to build up a comfortable cushion to protect my CSH.UN against a correction.

Both my Aston Hill Financial stock and my wife's are in the red, just slightly, but still in the red. I'd say it is in a holding pattern at the moment. I'm rooting for it but I'm not sure when AHF will find its footing.

Which brings me to my bet on a recovery in the housing market: Norbord Inc. (NBD). If one counts the pop I briefly enjoyed immediately after investing in NBD, I am already in correction territory with this stock. Norbord is down more than 12 percent from its recent high. If an overall market correction hits and NBD continues with its downward spiral, I'll have to re-evaluate Norbord.

I see the dividend as threatened in the coming months and that may briefly kick some more of the stuffing out of NBD. Norbord has a checkered history. I'll be watching this investment carefully for signs of recovery. I have my fingers crossed.

Tuesday, July 15, 2014

The power of dividends

When I sold my heritage English roadster, I put a chunk of the money into a tax free savings plan for my wife. That was less than a year ago.

It wasn't all that much money so I simply stuck the funds into two investments: some stock in Dream Office Reit (D.UN) and cash. Today that stock has appreciated in value but not by much. Yet, the total investment is up more than double the stock gain. Why? The D.UN monthly dividend.

As of today my wife's TFSP is up 8.1 percent. In a few more months her mix of cash and stock will be able to absorb a correction of ten percent and not dip into the red. Despite a double digit correction, she will retain more money in her TFSP than was originally invested.

And the cash portion of her TFSP is also generating a little income. Parked in TDB8150, an investment savings account, the cash is earning 1.25% while sitting on the sidelines. A little more than ten percent of my wife's TFSP savings is now in cash. It will soon be time to move it into a GIC paying about double the interest. (In today's low interest environment, some GICs are paying as well as bonds.)

With this mix of stock and cash, today my wife is enjoying an income of just more than seven percent. As the stock climbs in value and the cash dividends accumulate, the risk to the original investment is decreasing. By the time she is forced to begin withdrawing funds to live, this plan will have a solid mix.

I foresee the day when her TFSP pumps out enough money to balance her books in retirement for two full months. 16.7 percent of the year will be no longer require the financial support now supplied by RSPs. And funds taken from a TFSP do not enter into the equation for calculating the old age security clawback. An appreciated benefit.