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.

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