Monday, December 14, 2015

Talk about a pull-back!

My portfolio hit its high mark in late 2013. If  I had held more U.S. stock, it would have peaked in 2014. Whatever, it seems clear to me that all has been on a slow and steady slide for more than a year.

Each time I feel that stocks cannot fall farther, I buy a little. And then I sit back and watch the losses mount. Ouch.

Oddly enough, as the market has, for me at least, collapsed, my income from dividends has held almost constant. My new purchases have offset any cuts to my dividend stream.

How does such a long, drawn out decrease in market value make me feel? Actually, buoyant. Bad times don't last forever, here I can hear a friend immediately disagreeing and reminding me of the Japanese experience. I say, don't dwell on worst case scenarios if you want to sleep at night.

Come January, I'm going to remove the dividend money I need to live and then I'm going to start looking for some stocks to buy with my remaining cash. Hopefully the market will have a nice pop in the second half of 2016. There are some signs that such a hope is not a total pipe dream.

One thing that keeps me calm is my spread sheet. I have a column showing the total value of my investments at the beginning of my retirement in 2009 entered in the top field. Moving down the column of figures takes one from annual closing balance to annual closing balance. Each new field is a new year. Each field calculates how much my portfolio would have gained during the year if I had made the returns promised by the first financial adviser with whom I consulted.

But the spread sheet does more than this. It also reflects the annual drop in value caused by the withdrawal of funds to live in retirement. The adviser calculated that I would make more each year than I would remove and thus my portfolio would slowly grow over time. It has and it has grown more than that adviser's wildest dreams. Today I am still many bucks above the value envisioned by the adviser. If and when I drop below his forecast, I'll show concern.

Damn. But I hope that doesn't happen. If it does, I'll start thinking "Japan." My friend will understand.

Monday, November 30, 2015

Retirement income growing

My H&R REIT (HR.UN) has finally climbed nicely into the black and I have received the first monthly payment: $90. Very nice.

The good side is H&R has a portfolio of 40 office properties, 161 retail properties, 105 industrial properties, 5 residential properties and 2 development projects. The value? Approximately $13 billion. H&R REIT also has a 33.6% interest in ECHO Realty LP which owns 201 properties plus properties under development and vacant land.

The bad news is that some of the property is in Alberta. Enough said.

I'm into H&R REIT for the long haul. I may realize an annual income large enough to almost cover a full month of my income shortfall in retirement.

If H&R drops appreciably, I do not plan to sell. I'll buy more. I've got faith in this purchase. That said, I see this stock climbing once the oil patch problems stabilize with oil selling above $60 consistently. I may have some waiting to do.

Saturday, November 21, 2015

RIFs, TFSAs and Asset Shifting

The following is important. Please read. I am NOT a financial adviser. I am a retired photojournalist trying to make ends meet. Do NOT take anything that I say as gospel. Before acting on anything you read here, do some research and talk with a professional adviser. If you do discover I am wrong on some matter, please post a comment. I do not mind being corrected. ___________________________________________________________________________

Asset Shifting for Retirees In a Nut Shell

  • Allow 12-month's of dividends to accumulate in your self-directed RIF (retirement income fund). Keep dividends in an investment savings account within the SDRIF to enjoy better interest on the accumulating cash.

  • In January call the financial institution managing your SDRIF and have them make the minimum withdrawal demanded by the government but have this done as an in-kind transfer from your SDRIF to your TFSA (tax free savings account). Ensure you have adequate contribution room before making the transfer. Do not involve yourself in the transfer other than to request it be done.

  • Remove 4% of the total value of your SDRIF in cash. Ideally, this money is available in your investment savings account. Have the withdrawn money deposited in a bank account of your choosing. Consider a high-interest savings account as these can pay from .75% to 1.5% annually.(ScotiaBank Momentum Savings account pays 1.5% today.) Stay alert for fees.

  • There is no withholding tax on the in-kind transfer as long as it is not greater than the minimum withdrawal that must be made. But be aware the transfer is treated as income and tax must be paid at tax time the following year. When it comes to the cash withdrawal, there is withholding tax that increases as the withdrawn amount grows.

I've discovered my approach to withdrawing RIF savings in retirement has a name: It's called asset shifting. I meet my annual minimum withdrawal obligation by transferring stocks and mutual funds from my RIF to my TFSA in an amount equal in value to the minimum withdrawal.

This is an in-kind transfer. It must be done by the financial institution holding your self-directed portfolio. You cannot have any direct, hands-on, involvement other than making the request for the in-kind transfer. I have found TD Waterhouse has a good grasp of what is required.

The bank knows, right to the penny, your minimum withdrawal. If you have a LIF the bank also is aware of your maximum withdrawal. This year the TD had this information available by January 4th. If you have a self-directed TD Waterhouse account, the minimum withdrawal can be found by clicking on Payment Information near the top right of the Account Details (Holdings) page. Note: the withdrawal is considered a payment from your RIF and so the amount is shown under the words Minimum Payment.

As far as my overall portfolio is concerned this is a transfer and not a withdrawal. The value has not been removed but only shifted. This leaves me free to withdraw four percent in cash from my RIF. Four percent is the widely accepted safe withdrawal rate. As my RIF portfolio yields more than four percent in cash annually, finding the cash is easy.

The withdrawal is deposited in a high-interest account offering the bonus of double the interest on any funds untouched for 90 days or more. Today (Jan. 6th, 2016) this amount to 1.50% interest.) There are no charges for making deposits or withdrawals from this high interest account as long as everything is done online. Go to the bank for counter service and risk paying $5.00 for a simple withdrawal.

My other bank account is one that is no longer offered by the bank but it has been generously grandfathered. It is an account that was only offered to seniors. it charges no fees -- not even for cheques printed with one's name.

Any excess money remaining in the RIF that will not needed in the future can be reinvested. Money that is being accumulated for removal next year should be parked in an investor savings account. My TD investor savings account (TDB8150) is paying .75% as of today (1/6/16).

Keep in mind that although minimum withdrawals do not trigger a withholding tax, the withdrawal is income. When income tax time rolls around the following spring, tax must be paid. On the upside, those dividend producing investments (stocks, REITS, ETFs and mutual funds) transferred in early January 2016 will collect dividends tax free in the TFSA for more than year before the 2016 taxes are due. The accumulated dividends will help cover some of the tax that now must be paid. (Be careful that you do not pay too much tax in one lump sum in the spring. The government does not like waiting for its money. If you pay too much at tax time, you will be asked to pay your tax in installments in the future. Check with Revenue Canada for more information.)

The minimum withdrawal is a percentage of the total value of a RIF at the end of the previous year. The percentage is related to the age of the RIF owner on the following January 1st. If the RIF owner has a younger spouse, the RIF owner can elect to have the age of the younger spouse used to determine the withdrawal percentage. The benefit in doing this is that the percentage that must be withdrawn is less. The RIF may last longer. Clearly, this decision demands some careful thought. And remember, whatever decision you make, the decision is permanent.

I elected to have my wife's age determine my withdrawal rate. But now that I am making in-kind withdrawals, I'm not sure that using the younger spouse's age is still the best approach. I'll leave that for you to decide. Me? In a few years I'll look back and re-evaluate my decision. At that time I'll know whether I did the right thing or the wrong.

When one reaches the age of 70, the withdrawal rate reaches five percent. This is a lot to withdraw and it only gets worse with each passing year. A safe withdrawal rate is often claimed to be no more than four percent. If one withdraws more, the risk of early depletion of a RIF increases. Of course, this is the government's goal. They want you to deplete your RIF in retirement. In 2015 the federal Conservatives backed off a little on this forced depletion when they brought in new, lower rates.

Asset shifting provides one possible solution to this forced depletion problem. I'm going to try and never remove more than four percent in cash from our RIFs annually. The cash dividends accruing in a TFSA during the year provide cash to to live while the withdrawals increases TFSA contribution room in the following year. The maximum TFSA contribution room for 2016 is $46,500 for those who have all their TFSA contribution room intact.

It is not hard to envision a scenario where $46,500 in a TFSA could add more than $3000 in tax free income to a retiree's budget. And the cash from a TFSA not considered income and because of this it does not figure in the calculations of such things as the OAS clawback or the GIS (guaranteed income supplement). And a final perk is that the following year the contribution room will be the sum of the annual $5500 contribution room increase plus $3000 to allow replacement of withdrawn funds.

Clearly contribution room of $8500 will not be adequate to handle the entire RIF withdrawal demands faced by most retirees but for most of us it is a big percentage. The remaining investments can be transferred in-kind to a non-registered self-directed account.

Be careful when making these transfers. Do your research. You do not want to trigger more income tax than necessary. For a good essay touching on the problems of dividends and taxes, please follow this link to the blog My Own Advisor: Dividends. Consulting with an adviser might be a good idea if you have any questions. At the very least, give the government tax folk a call. I've gotten good advice in the past from the government people.

One last thought. When the government brought in the TFSA, they believed these would encourage new savings, new investments. There is no mention anywhere of promoting asset shifting by seniors. For this reason, I would not be surprised to see the government limit or eliminate this use of TFSAs. And as TFSAs grow in number and in average size, the government may put a lifetime cap in place. Similar tax free plans in other countries have been capped in some fashion.

And one warning: I found financial advisers did not want to discuss the in-kind transfer of funds from RIFs and LIFs to TFSAs. I even found banks that did not want to admit that such in-kind transfers were even allowed. I have found TD Waterhouse to be quite knowledgeable. Originally, I had my retirement investments spread evenly between two banks. The TD was a delight and the other was a pain. I cancelled my two accounts at the one bank and the TD covered the transfer costs of about $300.

I'm sure some of you are wondering how it is possible to earn more than two or three percent in this present low-interest rate environment. Some years ago a reporter at the local paper, The London Free Press, warned that retirees may find themselves eating pet food because of the low interest being paid on savings. So far, since I retired in 2009, I have found this fear to be groundless. Some of my investments and the associated yields:

  • Dream Office REIT: 12.31 percent (long term hold as neither unit price nor yield are certain)
  • Norbord Inc. : 1.45 percent (but it is up 14.24 percent in share price since I bought it)
  • Royal Bank of Canada: 4.15 percent
  • Sun Life Financial Inc.: 3.50 percent (and it is up 110.31 percent since purchase)
  • CIBC Monthly Income fund: 6.05 percent (sounds good but I don't advise buying)

The above is just a sample of the mix of stuff into which I have shoved my retirement funds. I find diversity gives me confidence and confidence allows me to sleep at night. I'm not greedy. I just want to pay my bills. So far, six years into my retirement, I see no problem keeping my budget balanced. I'm leaving pet food for pets.

I wonder how much the reporter who wrote the piece has saved toward retirement in the intervening five years. I know this reporter makes enough to save at least $5000 a year. If they had done that, today that reporter could easily have $45,750 saved. And that's after only five years. (It would be a little less today as the market is down as of 1/1/16.)

Don't believe me? Check the info below. Click on the image to enlarge. I put half the reporter's savings into the TD Monthly Income fund and the other half into the TD U.S. Index e-Fund. These are very conservative investments. I have both of these in my retirement portfolio. An adviser at the TD warned me to always have exposure to the American market. He was right. The reporter not so right.

Thursday, November 19, 2015

Buying early during a pullback not always bad

My recent purchase of Dream Office REIT has now descended into the red. Will the stock price continue to deflate? I would not be surprised. CIBC is rating the stock under perform and has set a target of $18.

There is a lot of worry concerning the REIT's Calgary and Edmonton rental space which makes up a a nice chunk of the REIT's holdings. I'm not sure of the exact percentage but I understand that 25 precent or more is held in the Western province whose economy has been crippled by the falling price of oil.

Desjardins and TD Securities are still rating D.UN a buy and at least one analyst has set a target price of $27. But even in that case the analyst's target has seen some large reductions in recent months. Should I have jumped ship and sold. Clearly, yes. I'd have more options today if I'd have followed that course. That said I need income and even with a possible cut in the dividend I will enjoy a nice, steady income flow form Dream Office.

This not the first time that I have bought a stock in mid-descent. A lot of my bank stock was not bought at the absolute bottom of the2008-2009 crash. I invested in XRE well before it bottomed during that same crash. I bought both XIC and XMD in mid fall. The thing is the market goes up and down. If you haven't paid way too much, if you bought at a discount but a smaller one than the eventual fire sale price, you will do just fine.

And you will enjoy a nice income while waiting for the recovery.

One last note: Earlier this year I started investing the monthly D.UN dividend in the TD U.S. Index Fund-e (TDB902). Fully 7.5 percent of  our one TFSA is now invested in TDB902. It has enjoyed almost a five percent gain since we started acquiring the units.

Monday, November 16, 2015

Did I catch a falling knife?

The green line represents the wild ride my TFSA has taken me on this year.

My investments have take quite the battering lately. Today my investment in Dream Office REIT took a dramatic tumble falling more than a dollar at one point. I could not believe the retreat the stock price was making. It was quite the surprise. D.UN is more than just office space in Calgary and Toronto but you'd never know it from the market reaction today.

D.UN is a big, core holding in my TFSA. Its fall has a huge negative effect on my entire tax free portfolio.Yet, I am doing better than a simple index investment in the TSX and so not all is dire. With luck, I may even hit my goal of a seven percent gain.

I had to ask myself if I was wrong to have faith that the market was undervaluing this REIT. My answer was yes; the units are undervalued. (But then what do I know. These units just keeping tanking.) I took action and bought another 100 shares and this time I got them for just pennies above $18.

Thanks to the tax free nature of this portfolio, the withdrawals that I must make beginning next year will pay for the better part of my wife and my shortfall in income for two months of 2016. I understand the double digit dividend is safe until at least 2017. I'm going to spend my income, keep my fingers crossed and hope that falling knife doesn't get those exposed, optimistic fingers.

Thursday, October 29, 2015

I switched from TD Monthly Income to TD Monthly Income

So far, the TD Monthly Income has been a better option than annuities for me.
Although some of the sparkle has dimmed when it comes the the TD Monthly Income fund (TDB622), it is still a fair place for a retiree to park a chunk of portfolio money. (See the above screen grab.) Combine TDB622 with a lesser amount of the TD U.S. Index Fund-e (TDB902) and one has the beginnings of a fine portfolio with very good allocation and no great amount of investment knowledge necessary.

This approach has gotten even better. TD is now offering D-series funds to investors with TD self-directed accounts. These funds have lower than usual management fees because the trailing commissions are restricted to .25%. Do-it-yourself investors shouldn't be paying big trailer fees for advice they neither need nor receive. One could argue that even at just a quarter of a percent, this charge is still a little steep. These funds are only available to investors with TD self-directed accounts.

Yesterday I switched from I-series TDB622 to D-series TDB3085. One call to TD Waterhouse is all it took. There was no charge. All quite simple. I understand I will now spend about 30 percent less in management fees. The old TDB622 was not all that expensive with a MER of about 1.48 percent but the new D-series TDB3085 shaves a little off that. I may pay about one percent when all is said and done.

I have owned TDB622 for many years and it has been a good, solid performer. There are funds that have done better but not many are as dependable and in retirement dependable is important. In the recent past I have been taking my own advice and adding some TDB902 to the mix. So far this is proving very satisfying and very profitable as the U.S. market is on a roll.

Wednesday, October 28, 2015

I buy and hold but I don't always hold the same stuff

Awhile back I bought some Chartwell Retirement Residences (CSH.UN) It paid a nice dividend, it is still paying about 4.36% today, and it climbed in value nicely. Today I sold my Chartwell holdings for a tidy profit of well into the four figures.

But I cannot get buy without income. This is a given. I cannot sit on the sidelines with too much cash for too long. I'm retired and forgoing too much income is not an option. I reinvested my funds in H&R REIT (HR.UN). This well respected REIT is yielding about 6.34% at the moment.

And I reinvested a touch more than I originally had invested in Chartwell. My income has taken a small bump into the black. The icing on the cake is that I believe H&R has more upside potential than Chartwell. Over the coming year I hope to make more holding H&R than Chartwell. I did well with Chartwell and I believe it was time to head for the exit.

Now, I may add a hundred shares to my D.UN holdings. Dream Office has not preformed as I had hoped. It is well off its highs and no one sees it hitting the targets that had been once been bandied about for this holding. A new purchase will bring my average price paid down considerably and make it possible to sell for a profit in the near future. Most claim the dividend is safe but whenever a yield climbs above ten percent, I get concerned. Still I will enjoy the dividend while I can and hope to make a profit in the end.

My bid for D.UN has not been attracted any sellers. The going price has climbed a couple of cents above my bid. Oh well, D.UN rarely makes a clean climb. I'll wait and hope to make my purchase on a small dip.

Tuesday, October 27, 2015

Buying more on any big dips

I'm watching for another dip in the Dream Office REIT share price. I may pick up another 100 shares. This would mean a monthly payment of about $112 as long as the dividend isn't cut. I'm betting it is safe in the short term.

D.UN is a long term hold for me. Even with a dividend cut, this REIT rewards me for my patience. I need cash flow and this holding answers some of that pressing need. Retirees cannot live on promised capital gains. Dividends are wonderful.

Saturday, October 24, 2015

Corrections are your friend

Despite the fear mongering in the media, corrections are normal and beneficial.

Recently the market had a correction. In fact, it still has not fully recovered. The media, as usual, reported this correction as a horror story. A number of reports said retirees who were heavily invested in the market lost millions. It was a disaster on a massive scale, according to these media fear mongers.

All not true, unless one was forced to liquidate at exactly the moment when the correction maxed out.

I was lucky. I had some cash on hand. Cash during a crash is nice. I bought some battered stocks and sat back and waited. I was confident I had bought some good stocks at fire sale prices. As you can see from the green line in the graph, my hunches were good and so far I am coming out on top.

I believe one should always keep a little cash on hand to take advantages of brief corrections.

Of course, not all corrections are short. Sometimes the market grows too fast, it becomes frothy, unstable, and tumbles from its greed-driven heights. If you bought a lot of stock during the feeding frenzy period, your pain may be a long time healing. But, even in this case the correction is your friend. It represents a return to sanity. A return to fair, even slightly conservative pricing of equities. Search out the good companies, the good stocks, and buy for the long term at these times. Over time the almost certain steady growth in value of your portfolio will reward you.

I have been in and out of the market all my life and in retrospect I would have done better if I had stayed the course and stayed fully invested at all times. I learned too late that corrections are opportunities not to be missed.

Monday, September 28, 2015

The stock market: Get in early, stay in and learn

Those who bought CPD some years ago have never seen a complete recovery.

 I bought my first stock before I was even a teen. Through my life I have been in and out of the market a number of times. When I retired I felt I had a good handle on investing. It may have been a good handle but it wasn't an excellent one. My units of CPD underline the holes in my knowledge.

I knew that the iShares ETF CPD (based on the Canadian Preferred Share Index) could lose value but I really had not contemplated how fast and how far it could drop. Today CPD is at $12.45 and yielding 5.4 percent. I never contemplated losing a quarter of my investment in such a relatively short length of time.

If I had stayed in the market and used that time to learn as much as possible, I might have dodged this loss. I'd like to say there's a bright side to all this, and there is, but I think I should refrain from making any firm pronouncements. It is time to stand back and drink in what has happened and to realize that more unseen problems may yet pop up. Preferred shares are not what they once were. The dividend income from CPD is more fragile than many might believe.

All that said, my CPD pumps out enough money to help me in my retirement. I will continue to hold, continue to enjoy the yield and continue to learn -- to learn stuff I should have learned forty years ago.

Here is a link to an excellent article on preferred shares in Canada: Preferred shares are not as attractive as they seem by Jin Won Choi. I could be in for a rough ride over the next few years.

One good thing, my portfolio is, for the most part, held inside a RIF. As the portfolio value drops, the minimum amount that I must remove also drops. The dividend income has held up much better than the overall portfolio value. This means I am able to live on my retirement portfolio yield while waiting for the eventual return of the bull. My portfolio will recover.

Now, I am finding myself actually rooting for some more stock prices to pullback. I've kept some money on the sidelines and I'd like to pick up some bargains, especially in the utilities sector.

Friday, September 11, 2015

Another kick at the can

The market is continuing to soften. It has become what I begrudgingly must admit is a bear market. This is bad for the stuff I own but it means I am now looking for buying opportunities. I'm attracted to three companies in the utility sector:

Brookfield Renewable Energy Partners L.P. (BEP.UN)
Emera Incorporated (EMA)
Fortis Inc. (FTS)

The utilities sector is under pressure because of its sensitivity to rising interest rates. Rates have not risen, yet, but the market seems to be factoring in some of the damage early. When rates do eventually rise, the sector may drop even more.

I have looked at XUT, the iShares ETF giving an investor some exposure to the utilities sector, but I figure I can do just as well, if not better, buying the three big names listed. My plan is to weight my purchase toward Fortis with Emera next and Brookfield bringing up the rear. This will be a long term hold which will pay a nice dividend which should increase with the passing of time. I see this mix as better than simply buying an annuity.

I'm keeping my powder dry, waiting and watching.

I heard from an friend who has been building his portfolio for years. He agreed with my choice of utilities but called to tell me to add Canadian Utilities Ltd (CU). I had considered CU but left it off because the dividend didn't reach four percent. He knew without asking why CU was not on my list.

I listened to his argument and I was swayed. I'm adding CU to my list of utility stocks to own. My exposure to CU will be similar that of BEP.UN. And he had a caveat concerning BEP.UN. If I were to insist on buying only three stocks, he would remove BEP.UN before CU.

Thursday, August 27, 2015

Portfolio up almost a percent from value before correction

The market stumble the other day was a test. Did you panic, did you cheer, did you hold or did your buy? I bought. I increased my exposure to U.S. equities by buying a little more of a TD e-Fund (TD US Index: TDB902).

Today my retirement portfolio is up almost a full percent from where I sat about eight days ago or just before the correction.

If this grandfather hadn't been babysitting on the day of the huge and oh-so-sudden correction, I'd have bought a lot. Damn. I've been moving into cash for some time and waiting for the moment. The correction came and went so quickly. One had to move fast. There are still stocks going at reduced prices but the fire sale is over.

Oh well. Corrections, even sudden major corrections, are a part of investing in equities. Keep your powder dry. There will be another equity sale in the future. Be patient. Sometimes these recoveries are simply a bounce that will run out of energy and the stocks will begin sliding downhill again. I may get a second kick at the can.

I should mention that I am up almost five percent from the portfolio low reached at the worst of the quick correction. Leave the panic talk to the newspaper reporters and television talking heads.

Wednesday, August 26, 2015

TFSAs are a godsend to many retirees

I have a friend who despises Stephen Harper and his Conservative government. (My friend is a bright guy.) He will not be voting for our boy from the West or the party he leads in the upcoming election. My friend considers himself and his wife as middle class. He feels forgotten by Harper as our PM piles the goodies onto Canada's wealthy. In this vein, my friend has a great hatred for the increased TFSA contribution limit.

This is another tax break for the wealthy, he says. Is he right? As a senior stuck firmly in the middle class, I have my doubts. My wife and I both have TFSAs and we both believe that these may prove to be financial godsends, especially for my wife as she gets older. And we are firmly anchored in the middle class.

According to the Conservatives:

By the end of 2013, almost 2.7 million Canadian seniors had TFSAs.  Of those, nearly 60% had annual incomes of less than $40,000. And of the people who contribute the maximum amount to their TFSAs, almost half are seniors.

Yes, the source of the above is biased. I'm sure my friend would insist on seeing these claims backed-up by someone not part of the Conservative establishment. I believe he would give more credence to information supplied by the CBC. Well, let's see what Canada's broadcaster has to say, "Who benefits seems to be more tied to age than income, although both are obviously factors. Fully one in five people over the age of 75 maximized their TFSAs . . . "

According to the blog Life on Credit:

Finance and tax experts say the new contribution limit offers more flexibility, whether you are in the middle income bracket or have a more limited income. Even an income of $50,000 or lower makes the tax-free savings account a better alternative to the RRSP because TFSAs help save on taxes. . . .

The new limit is designed to benefit middle class couples. . . .

The federal government believes retirees will be the major beneficiaries of the new contribution limit. Seniors may want to move cash from their RRIF to a TFSA. There are multiple benefits to doing this but a big driver is that less cash in an RRIF means less money to which the minimum withdrawal applies.

The Liberals, under Justin Trudeau, have announced that if elected they would reduce the TFSA contribution limit back to $5,500. Trudeau argues the new, higher limit disproportionately benefits the wealthy and he finds support from left-leaning think tanks such as the Broadbent Institute. I beg to differ.

My wife and I are retired. My health is poor but my wife's is not. She might well live into her nineties. Buying an annuity today is a fine option for me but a fixed annual annuity payout could easily prove to be a disaster for my wife. Even a modest three percent inflation rate would destroy the value of the buying power of her annuity in the 20 some years it will take for my wife get into her 90s.

We have opted to put our money in the market rather than in annuities. Today, $100,000 will buy 1400 Royal Bank shares. Those share will pump out a dividend income of $4424 annually. With those shares sitting in a TFSA, that income would be more like $5000 in taxable income, for many retired Canadians. This is almost, but not quite, the income to be expected from a $100,000 annuity.

The annuity payout is fixed. The Royal bank dividend is not. My gut feeling is that the money we have sitting in stocks will, over the next two or more decades, prove to be a better source of income than an annuity.

Saturday, July 25, 2015

Norbord back (in my portfolio) with 50% more stock

My TFSA is blue line mostly at top.
Recently I sold all my Norbord (NBD) -- all being 400 shares. I did O.K. with NBD. It helped propel my TFSA to heights that often bested the TSX. But when NBD passed the $28 mark, I bailed.

Last Friday NBD dropped to $24.10. I bought 600 shares. This means I have about $14,470 in NBD. My limit is $15,000. I'm now fully invested. It is time to sit quietly and watch the action.

And just what is this action that I expect? There isn't anything, to tell the truth, at least not in the short term. I'm not a fortune teller. The economy may weaken and drag NBD down or the sale of new homes in the States may strengthen and drive NBD's value north of $30. (Some analysts have set a target of $27 for the stock in the coming 12 months.)

After chopping the all-too-generous dividend to a more reasonable yield, I was surprised to see a second cut dropping the dividend from a dollar a year to 40-cents. Oh well, the dividend may not have been safe but I believe the company is. Norboard is a good company making a good product -- OSB or oriented strand board. Many claim that OSB is as good as plywood but less expensive. Home builders love it.

If home building in the U.S. continues to recover, the price of OSB should climb, sales of the large sheets should grow and Norbord, a big supplier of OSB, should prosper. Home building in the States may stall in the short-term but eventually the pent-up demand will benefit OSB producers like Norbord. Sooner or later I believe I will be holding a winner.

This is not advice, I don't give advice -- and a good thing too. I have been wrong on this stock in the past. I thought the 4 percent dividend was safe. It wasn't. I thought OSD would have rebounded by now. It hasn't. In fact, it has taken another dip. Two big disappointments. Still, I have confidence that I will do just find with this investment but patience is the now the name of the game.

The best think I can say for NBD today is that the stock adds diversity to my portfolio and in this sense enriches it.

Tuesday, July 7, 2015

RRIFs and in-kind withdrawals

My TFSA portfolio beats the TSX index while pumping out income (yield).
As a retired fellow I am concerned with managing my RRSPs. Recently I've been wondering, should I convert them now to RRIFs or should I leave them be as long as possible as RRSPs? At age 71 the problem solves itself. One must wind up one's RRSPs by the end of the year in which one turns 71 unless one's spouse is younger and then one has the option of choosing instead to base the wind up on their spouse's age.

Some advisers with whom I have talked have told me to leave my retirement funds sitting in RRSPs as long as possible. Convert at the last possible moment, they say. Others have advised me to convert my retirement savings to RRIFs as soon as possible. When you hit 65 and retirement, convert they say.

There are, of course, at least two other options. One can use the RRSP funds to buy an annuity of some type or one can simply close the RRSP account and take the money. With interest rates at historic lows, annuities are not the attractive option they once were. Very few advisers have suggested I should buy an annuity at this time. I believe the annuity option remains on the table even after one makes the switch from a RRSP account to a RRIF.  (For another take on Which is better, a RRIF or an annuity?, read the linked article in The Globe and Mail.)

Taking the money itself is not much of an option for most of us. The full amount of the withdrawal would be treated as income, as I understand it. The tax hit would be enormous. Very few people take this route for obvious reasons.

So far, I have steered clear of converting. In the great scheme of things, and in my case in particular, it seems the only gain would be saving the $56.50 withdrawal fee applied to RRSP funds. There are no fees for making the annual withdrawal demanded by an RRIF.

So what are the advantages of an RRIF over an RRSP? As best as I can figure, the advantages are:

  • There are no charges for making the mandatory annual withdrawal from a RRIF. This offers a savings of from $28.25 to $56.50, in my experience. You'd be wise to check the charges with the financial institution at which you have your RRSP.
  • If you deduct only the minimum amount from a RRIF, you will not be hit with a withholding tax. You will receive all the funds withdrawn - no withholding. But be aware, the withdrawal is treated as income and will be treated as taxable income at tax time. You must pay the tax piper at some point. You must have the money to pay the tax available. Any amount withdrawn over the minimum will have taxes levied at the time of withdrawal similar to the withholding taxes on RRSP withdrawals.
  • A RRIF withdrawal is treated like pension income by Revenue Canada. This means if you don't already have pension income, the RRIF payments will allow you to take advantage of the $2000 pension income tax credit. This can be a nice perk if you have no other pension income, but for those who already have enough qualifying pension income to take advantage of this deduction, this benefit offers no extra tax savings.

And what are the disadvantages of a RRIF over an RRSP?

  • I think the big drawback to RRIFs are the minimum withdrawals demanded by the government. For instance, when I retired the government at the time insisted on a minimum withdrawal of 7.38% upon reaching the age of 71. This withdrawal rate increases with each passing year. A recent budget lowered the mandatory withdrawal to 5.28% at age 71. The rates are progressively lower for those under 71. Withdrawal rates still increase annually but now one must hit 95 before maxing out at the 20% withdrawal ceiling. 
  • Another drawback is that unlike my company pension, a RRIF or registered retirement income fund, carries some risk. The income is not guaranteed. I'm comfortable with the risk today but if I had to face a repeat of 2008 would I still be so sanguine? I doubt it.

Yet after some thought, I've decided to merge my RRSPs and convert my retirement portfolio into a RRIF. I see an immediate advantage to the no withholding tax on the minimum withdrawal rule. My true tax rate is much lower than the withholding tax rate. This offers a small advantage but still an advantage.

On the other hand, there is no doubt in my mind that anyone with a locked in RRSP should consider the transfer to a locked in RRIF. Getting money out of a locked in RRSP is difficult in retirement. There are forms to fill out and then taken to the bank. Plus, there are the withdrawal charges to consider and the withholding tax.

Want to know more? Here's a link to Financial Hardship Unlocking Forms for 2015. These forms are important if you have a LRSP and desperately need money in retirement. Converting a LRSP to a LIF puts an end to the need for these forms.

Now that I have converted my RRSPs to a RRIF, the biggest question for me is this: What is the best way to remove my money?  If one has a sheltered portfolio of equities, getting the money out demands some thought. If the market is down, you don't want to find yourself forced to sell shares into a sagging market.

I decided that, as much as possible, I'm going to remove funds using the "in kind" approach. The government allows retirees to transfer stock and other holdings from one's RIF to say a TFSA, if one has the headroom in the TFSA. When moving equities, the FMV (fair market value) is calculated on the equities when they leave the protection of the RIF.This value will be important when income tax time rolls around. Because of the manner in which this transfer is done, the FMV for the withdrawal is the same as the FMV for the deposit.

I found this surprising but my bank claimed there was one wrinkle in the "in kind" transfer. The equity transfer, the bank rep said, cannot be carried out directly from the RRIF to the TFSA. The equities must be parked in a non-registered cash account first and then moved from there to the TFSA. In order to complete in kind transfers, I was asked to open a new account to be used only when moving equities, etc., from my RIF to my TFSA. I thought this was weird to say the least.

According to an article that ran in the Toronto Star, the expert consulted by the newspaper agrees:

"most institutions will allow you to transfer your investments 'in kind' to a non-registered account or TFSA account. . . . So if you have 100 shares of BCE in your RRIF priced at $32 a share, you can transfer these shares directly to your TFSA account as a $3,200 contribution. Because there is no withholding tax required when the minimum amount is withdrawn from a RRIF, you won’t have to sell RRIF assets to generate the cash to cover the tax. For withdrawals in excess of the minimum amount, RRSP withholding tax rates apply . . . "

Rather than do battle with the folk at the bank, I moved my self-directed accounts to another bank. I moved my portfolio to TD Canada Trust. The online support was especially quick and oh-so-polite. I sent my first e-mail on a Sunday and immediately got back a reply. The TD has online staff answering client questions on Sundays. I found this amazing as my original bank didn't answer the e-mail I sent to them for four full days. And the TD says it does these in kind withdrawals frequently and all is done without my involvement. I do not have to open a new account as was demanded by their competitor.

My first choice when it comes to which equities to move will be underperforming stocks that also pay a poor dividend. These are stocks that may be down but which I hope will recover eventually. I will pay tax at time of withdrawal, this is only fair, and the tax will be based on the depressed FMV at the moment the equities leave the protection of the RRIF.

Funding fun in retirement is important.
I want to keep my biggest dividend payers in my RRIF as long as possible. I want to accumulate some cash in my RRIF to give myself wiggle room as I withdraw money. I don't want to be forced to sell stock at the wrong time.

Most of us have lots of headroom in our TFSAs. I want to take advantage of this to the greatest extent possible. With luck, I hope to get enough dividend paying stock shifted into my TFSA to make that account an important source of funds in retirement. The nice thing about funds removed from a TFSA is that they do not count as income and do not trigger a claw-back of one's OAS.

One advantage of my TD Direct Investing account over the now closed accounts at the other bank is that the TD account information can be downloaded and linked automatically to an Excel spreadsheet. I no longer have to fill in the fields myself. Nice. Now I have more time to spend with my grandchildren.

Friday, July 3, 2015

I added to my D.UN position

I have a rule: Don't put too much money into any one stock. Too much risk. I've watched too many supposedly good companies stumble and fade away.

That said, D.UN is a good company. It is not a great one, but it is a good one. It has suffered some downward pressures that are unique to it but I don't see them as insurmountable in the least. I own D.UN and I'm in it for the long haul. It is one of my core holdings, at this time.

As I said in an earlier post, REITs may not take the severe hit that many are expecting when interest rates begin climbing in earnest. And if they do, they should recover over time. I'm willing to make a small investment and take on the risk.

When I originally got into D.UN I could only buy 500 shares and remain below my investment cut-off point. Today D.UN dropped in value to a point that I could pick up another 100 shares and still remain below my total investment cut-off point. I will now make about $112 each month from my core D.UN holdings.

One REIT that I do worry about is REM. The American mortgage REIT from iShares is a dividend factory. It pumps out double digit yield annually. I love it but it worries me. If interest rates do start to climb, and they will, REM may take a big hit. On the bright side a small holding gives my income a very nice lift and has for a number of years now.

I'm up in the four digits region with REM. If it starts dropping, I'll drop it from my holdings. If the mortgage REIT ETFs drop low enough, I'm thinking of REM or MORL, I would consider getting back into the high-yield game.

Since writing this, D.UN has continued to slide. With the price of oil at six year lows, leasing office space in Calgary is not the plus it was. D.UN has lots of office space in Canada's West and this has become quite the drag on the once buoyant REIT. Unexpected changes at the top have add to investor concerns.

D.UN is a hold today and no longer a buy. I'm holding and reinvesting my D.UN dividends in other areas to add diversity to my portfolio.

Wednesday, June 10, 2015

Park the stuff and get on with life

As a retired couple, my wife and I need income to live. My pension, CPP and OAS taken together are not going to keep us in our home. I took a cut of about 25% in both my pension and my CPP when I accepted an early retirement offer from my employer, Quebecor. My wife was forced to begin drawing her CPP early in order to balance our books. This meant she took a slightly larger cut in payments than I did. She is younger than I am.

Yet, my wife and I are still in our home some six years into my retirement. We have bought a new car, a VW Jetta TDI. We have taken one big vacation: six weeks in my vintage Morgan (since sold) to California. Life is good. How is this possible? Dividend paying stocks.

Take our investment in REITs. I buy them and hold them and live on the monthly dividends. Whether the value of these holdings goes up or down is not of big concern to me. I would not like to see a cut in the dividends, that I would notice faster than a fall in unit value, but even the unit value can fall without causing me to lose sleep.

I bought most of our REITs holdings when I retired. Some are up and one (D.UN) is down. Overall the REITs section of our portfolio is up by a few thousands. I see that as a cushion guarding my sleep. But, there is another cushion and that is the monthly income. We realize an income of about $450 a month from our REITs. This amount is enough to make up the shortfall in our income for a full three months.

REITs have been under great pressure lately. They have dropped in value and this has negatively affected the value of our overall portfolio. Am I worried? No. In fact, I may buy a few more if the price is right. When the market falls, I see a buying opportunity. I figure sooner or later there will be a correction of some size and I hope to have some cash on hand to take advantage of the sale prices.

In the meantime, while I wait, I will enjoy the monthly income, enjoy my grandchildren, enjoy my wife, enjoy my home.

Oh by the way, the Bank of Montreal utilities ETF, ZUT, dropped below $15. This is another nice income payer for those in retirement. I have a little ZUT. If it drops below $14.00, I may double my holdings. (I won't put too much in ZUT as I am not all that fond of some of the stuff held by this ETF. I love Emera and Fortis but have reservations about Just Energy.)

I'm watching XUT as the prices drop. If the prices drops low enough that the dividend yield climbs above 4% I may well buy some XUT. Personally, I prefer the mix in XUT to that in ZUT. The iShares ETF has a lot of exposure to the big, safe names in the utilities category. In fact, one could just buy the top five utilities and create your own pseudo ETF. That said, XUT offers a lazy person a nice mix with safey in the diversity. I'm old and lazy. I'll keep watching XUT for a entry point. (I'm also going to examine some of the other utilities offerings as it does seem that the time to buy may be coming.)

And lastly, I caught a chap talking about both REITs and utilities on BNN. He said his investment company had done an indepth review of how REITs and utilities react in a rising interest rate environment. REITs, as long as they aren't mortgage REITs, fare just fine, he said. He isn't selling off his clients REITs. But, utilities are another matter. These investments suffer. He is lightening up on utilities.

I can agree somewhat with what he is saying and go so far as to add some utilities exposure when the time is right.

Friday, May 22, 2015

A new monthly income fund to consider

I have a soft spot in my heart for monthly income funds. The MERs are not screamingly high but they are still uncomfortable. Some of these MERs are in the 1.5% range. What makes these funds attractive is that whenever the market dives, as it does now and then, these funds hold more of their value than other not-so-well-balanced funds. One can plan on sleeping at night if one keeps money in these investments.

One of my favourite monthly income funds, the TD Monthly Income, charges a MER of 1.47% and has yield of 1.46%. Although Morning Star rates it a four star fund, it has careened from the 4th percentile to the 1st in the past six months. On one hand it appears to be regaining its footing; on the other hand Year To Date (YTD) it is only up .61%. This is on the low side and not what I have come to expect from the fund.

I've been looking at Purpose Monthly Income Fund (PIN) as a better place to park my retirement money while minimizing volatility. The MER for PIN is .95%. High for an ETF but still better than my personal benchmark, the TD Monthly Income fund. The dividend yield today is 4.81% which is more than I need in order to live in retirement and is much better than the TD offering. And PIN is up 1.6% YTD. Another bonus.

Now, I am surprised at how little PIN has grown this year considering the mix. And I am surprised at how closely both PIN and TDB622 track when graphed. PIN is on top more than the TD fund but not by so much as to have any bragging rites.

So what is the PIN mix? Well, it is split between cash, bonds and equities with the biggest chunk of equity investment in the States, followed by Canada and then Asia and Europe. I'd have thought that PIN would have fared much better than the TD fund considering that the TD fund has essentially no money invested outside Canada.

The biggest downside to PIN is its size. The ETF has only about 12.9 million in total net assets. I believe PIN must grow if it is to survive. TDB622, on the other hand, has 6.8 billion in total net assets.

I'd like to see PIN show some signs of growth, of attracting investor interest, before adding it to my portfolio mix.

The difference is in the cash yield

I have a little money growing in a tax free savings account. At age 71 at one is forced to begin liquidating one's RSPs on a schedule dictated by the government. It is good to move as much of that RSP money into a TFSA as possible. I've started.

In the graph above my TFSA is the blue line. As you can see, since opening the account, I have, for the most part, stayed above the S&P/TSX Composite and the S&P/TSX 60 Index. The big difference, I see it as an advantage, is that I have realized more of my growth in cash than those benchmark indexes. Why? Because all the investments are dividend paying stocks. One equity, before the dividend was cut, had a better than 11% yield.

With my investment up more than 20%, I'm thinking I might be bold and put the growing cash into PIN. PIN is the Purpose Monthly Income Fund. It is a nicely balanced ETF with both Canadian and U.S. equities plus a nice assortment of bonds. It yields almost 5% in cash annually.

With interest rates remaining so very low, it can be difficult for a retiree to find adequate cash income without taking on more risk than one would like. So far, I've been lucky. I've taken on the risk and I've been very nicely rewarded. After more six years in retirement, it would take a heck of a downturn to drop my portfolio into the red compared to where I entered the market.

p.s. Two of the big movers in my TFSA are Norbord and Royal Bank. As the U.S. economy continues to improve, the housing starts in the States should keep growing and this should pull my Norbord stock to new heights.

Tuesday, February 17, 2015

Money diminishing for life

The television ad promised "money for life." It showed a very happy and a very relaxed retiree enjoying the benefits of having money for life. It sounded too good to be true but I contacted Sun Life Financial anyway. I thought this was probably just a fancy ad for the Sun Life annuity products. and it was -- sorta.

I learned that if I gave Sun Life Financial $100,000, they would provide my wife and me with a monthly income of $435.12 for a guarantee period of 15 years. If either one of us lived longer, we'd continue to benefit. If we died before the 15 years had passed, the remaining money would be paid to our estate. I believe this is an income for life annuity with a guaranteed period certain benefit.

$435.12 per month is $5221.44 a year. This is only 5.221 percent per year on our 100 grand and no inflation protection. Is this good? Maybe -- but I strongly suspect it isn't. It all depends upon how long my wife and I live. I have a bad heart. Everyone will be surprised if I am still here in 15 years. But my wife's grandmother lived into her 90s and my wife shows every sign of doing the same.

Let's consider the effect of inflation on this "money for life." If the next 15 years are like the past 15, then inflation will average 1.91 percent. Historically, this is a rather low rate of inflation. We have gotten off easy these past few years. Still, in just 15 years, my "money for life" would be greatly diminished in value, delivering something in the neighbourhood of 30 percent less buying power.

If my wife lives to 90, another two decades plus, her "money for life" annuity would be slashed in buying power by something approaching almost 50 percent. At age 95 my wife would still be getting a monthly cheque for only $435.12. Does this sound like a good deal? It sure does, for Sun Life.

But I shouldn't be too quick to knock annuities. There is something to be said for having some guaranteed income, even if it is shrinking in buying power every year. My pension is shrinking. It is not completely protected from the ravishes of inflation. But that pension is a wonderful thing to have despite its shortcomings.

Interestingly, I own stock in Sun Life Financial. My investment is up 84% in just a few years. In other words, if I had put $100,000 in Sun Life Financial back when I made my original investment, today I'd have $184,000 in stock. And even better, Sun Life pays a very nice dividend. My initial $100,000 would have purchased 4727 shares and today I'd be enjoying an annual dividend of $6806.88.

This not to say one should never buy an annuity. Annuities have their place in your financial plans but they are not the only investment vehicle to consider. Even the Sun Life representative said as much. He'd put some of our portfolio into an annuity -- he suggested we should have a guaranteed income greater than our expected expenses -- and he suggested putting the remainder of our portfolio into other investments, equities and bonds, while keeping an eye on the tax treatment.

My visit with the Sun Life fellow was educational but it didn't convince me to rush into "Money for Life." Interest rates are down and may drop more. I'll take my chances and hope that by the time my wife and I hit the must-convert-age that interest rates will have recovered somewhat. Higher interest rates translate into higher monthly annuities payments.

When I hit the must convert to a RIF or annuity wall, I hope to know more about investing and the tax treatment of investments. Right now, I believe my wife and I will be ready to add an annuity into our financial plan at that time.

And, I'm keeping the Sun Life rep's card. I liked him.


This add is in response to the second comment following this post. I agree with the writer that we all have fixed expenses and variable expenses. I track both categories using an Excel spreadsheet. To keep my expense records accurate, I charge everything using  a card that rewards me with a full one percent rebate based on the total amount charged.

I charge all food, telephone, clothing, all car expenses except for insurance and much much more. I easily charge more than $20,000 annually and collect more than $200 in rebates. (We charged a new furnace and a new central air unit a few months ago. The rebate helped ease the pain of that unexpected purchase.) By charging almost everything, I have a monthly record supplied by the credit card company that tracks in detail most of our expenses.

Now, let me make this quite clear. I do NOT enjoy a 6.8% yield on my Sun Life stock. What I was attempting to do was compare apples and apples. When I retired, I got some quotes from banks and insurance companies concerning annuities. I was not impressed.  I was told a hundred thousand dollars would deliver maybe $5,500 per year and that payment would remain stuck at $5,500 until both my wife and I died.

Instead, I put my wife and my money in the market. Today our investments have grown by 60% and that is after we have removed tens of thousands of dollars from our portfolio in order to live in retirement. One stock I purchased for us was Sun Life. Here is a screen grab of our investment.

Click on the above in order to enlarge and read.

I paid only $21.50 for a stock that paid a dividend of 36-cents this past December. A hundred thousand dollar investment made in Sun Life itself sometime after my retirement would be delivering about $1675 every three months. This is about $558 per month or $6700 annually. The icing on the cake is the capital gain. The stock has gained almost 85% since purchase. Click on the above screen grab to enlarge and read.

And it is not the only winner in my portfolio. The past few years have been an amazing time to be in the market. When my wife and I get a little closer to the 71 years of age milestone, we will again consider annuities. Maybe, just maybe, the government will have, by then, changed the withdrawal rules and we may then just allow our portfolio to continue chugging away until we both have died. Our estate can take care of the expense of liquidating our registered retirement savings.

Click on the above in order to enlarge and read.

As for high dividend paying stocks, there are a few out there that I like for long term holds. For instance, Dream Office Real Estate Office Trust (D.UN). It has been knocked down a little by recent news, the head of the REIT moved on, the holdings in the West are being questioned as the price of oil plummets. With the price not, in my estimation, accurately reflecting its value, the dividend payment calculates out at an inflated value: 8.53% today.

Both my wife and I own units of D.UN. Her tax free savings account has grown by a full 25% since she opened the plan. Today that account delivers more than $1400 annually. It would take a massive correction to put her plan at risk of falling into the red and the cushion is growing.

Monday, January 26, 2015

Investing: not gambling but still taking chances

I liked what I knew about Norbord. In my opinion, it made a good product and it had a commanding position in the industry. The product? Oriented strand board (OSB). One can think of OSB as a cross between plywood and the cheaper, both in price and quality, chipboard. There is a lot of OSB used in building construction, especially home building. As home building in the U.S. rebounds, Norbord should benefit. I bought some stock.

Norbord briefly popped and then started on a long, bumpy road downward. I should have bought more when it dipped below $22 but fearing the falling knife, I have some deep financial wounds from doing this in the past, kept me on the sidelines.

Today, Norbord is back in the black in my books. My tax free savings account, started after I retired, is now up almost 25%. Is this like winning a small lottery? No. This gain is simply the result of making a good call. A good investment call.

Take care, invest carefully, and, over time, you will win more than you lose. There is no way to guarantee a win with a lottery ticket. In fact, buying lottery tickets for all but the very lucky is a guaranteed way to lose money.

Learn about asset allocation, set some investment goals, find some stock analysts you trust . . .  And stick to your decisions unless something happens to prove you were wrong. Don't flit here and there, buffeted by changing financial winds.

I am going to go on record as saying I will hold Norbord until I have at least made a profit of about ten percent on my original investment. That was my original goal and I see no reason to change it. Because I am retired and I need to be moving into safer investments, I will put my investment plus the profits into something less risky, something less volatile. If I were younger I'd be bolder. But, I'm not. I'm old.

For instance, I will be making fewer forays into resource stocks like Labrador Iron Mines in the future. My winners have easily covered my losses in LIM. I didn't jump into LIM with both feet. Still, it was not a great move for a retired chap. But, my asset allocation encompasses making wild-flings-for-fun and I did not put more into LIM than I had budgeted as a manageable loss.

Will the path upward be smooth for Norbord in 2015? I don't know. I would be surprised if it was. Still, I have confidence Norbord will deliver a tidy profit in the end.

Other stocks and ETFs that have helped buoy my portfolio:

Bank of Nova Scotia: up 122%
Crescent Point Energy: up 34%
iShares XIC: up 36%
iShares MSCI Singapore: up 60%
iShares XMD: up 47%
Royal Bank: up 55%
Sun Life Financial: up 85%

Only four of my investments are in the red.

Wednesday, January 14, 2015

Living in Retirement

The market waxes and wanes but my expenses just keep on growing. Putting my retirement money in the market, I was told, was a bad idea. I did it anyway. Even with the recent pullback, my wealth has grown by more than 50 percent since leaving The London Free Press. And that is after removing some funds annually to balance my books.

Today I checked the present yield my wife's Dream Office REIT is delivering. She is enjoying an almost 7.5 percent yield when calculated on her original investment. And the best part is that her total investment has grown in value and is still hundreds of dollars to the plus side. The stock is actually down from where she bought in but the constant flow of monthly dividends has given her investment the needed buoyancy.

We don't need to cash the dividends and so they simply 'puddle.' Each month the cash in her account grows. Each month the percentage of cash in the account tends to increase. The account gets less and less risky over time -- if you equate volatility risk. Today her tax free savings plan is about 14 percent cash. 84 percent equity and 14 percent cash is not a great ratio if safety is one's goal but it is still a pleasant holding of cash. The interest on her cash isn't much but it helps protect the cash from the ravages of inflation.

We won't buy more D.UN. No point having too much exposure to one stock. But we will buy another solid, dividend-paying investment and let it sit with dividends 'puddling.' When we get into our mid 70s and need a good source of steady income, I'm hoping our two TFSAs will be there to help fill the need.

Thursday, January 8, 2015

Some investments holding up well

When my wife opened a tax free savings account she had very little money to shove into the plan. Because of the limited funds, she simply stuck all the money in some shares of  Dream Office REIT (D.UN).

Recently the stock started moving lower. Thanks to over a year of accumulated monthly dividends it took awhile for her account to descend into the red, but eventually it did. But today it is back in the black thanks to those same dividends that earlier provided some buoyancy. She is now almost six percent to the good. With interest rates at historic lows, this is not a bad yield. In seven days she will realize another dividend payment and the cushion sheltering her from a loss will grow yet again.

Like my wife, I have little money available to invest in a tax free savings account. But I divided my money between two companies: the Royal Bank and Norbord. My RBC share not only pay a nice dividend but have grown in value. Even with the recent downturn in financials, I am up about 74 percent on my investment. My Norbord is down if all one considers is the stock price but it is up almost 3.5 percent after the dividends are considered. Thanks to good luck and those nice dividends, my tax free savings account is up some 24.7% in very few years.

With the market battling to gain a little ground, with volatility the name of the present game, it is easy to lose faith in the market. At times like this, I like to stand back and look at the big picture. Where are my investments today compared to the day I retired? My investments are up. Way up. After removing tens of thousands to live in retirement, my retirement portfolio is up more than 55 percent.

Have I always made the wisest investment choices? No, but just how bad is something one can argue about over a beer. The dividends have been a godsend in retirement. At the end of the month I'll see how I am doing this year compared to two alternative investing approaches, both easily done: the TD Monthly Income fund and the Complete Couch Potato.

A reader recently made me aware of another TD fund that has performed very well over the years. I'm watching it and may blog on that fund at some later date. I may even buy a little for myself.

Wednesday, January 7, 2015

Tightening the financial belt

Our VW Jetta TDI has not been costly.
The good times are over -- for now. When the markets were climbing, as was the case in recent years, my wife and I enjoyed the windfall. We have a new car, a Volkswagen Jetta TDI, we made lots of improvements to our home, making it a nicer place to hang in our retirement. I refreshed my wardrobe. The list goes on.

Now, with the markets down and our portfolio down even more, the taps controlling our spending have been closed. Not completely, we are will still be taking my oldest granddaughter to see Paddington Bear at the nearby cinema, but big tickets items are no longer in the budget.

And when I say budget, I am not just talking figuratively. We have an actual budget. It is an Excel spread sheet and it pulls no punches. I list all our sources of income and all our can't-wiggle-out-of-these expenses. I then add the expenses we can control and these are the ones I trim. The shortfall is what must come out of our RSPs. This year we will try to remove less than four percent. This is less than our dividend income.

To get our expenses down, I have applied zero-based budgeting where all expenses must be justified. For instance, I could not justify our monthly cell phone expense. I've canceled our monthly plan and moved us to a prepaid annual plan. This chopped our cell phone expense from some $420 a year to about $100. Although there were some one time costs associated with the move. I figure these only amounted to about another $50.

A budget is important and a very important part of the budget is the section where one estimates how much one might spend on stuff that was impossible to accurately estimate. For instance, our central vac hose has split and must be replaced. We did not anticipate this expense. But, I have a field for these unanticipated expenses and it is not blank. I know I will be blindsided during the year. I am just not sure by what.

For instance, we had to have a new furnace installed immediately after Christmas. This was one of those financial hits difficult to see coming. Recently, we have been battered onto the financial ropes by both increasing expenses and decreasing income. This will be a year for testing the resilience of our investment strategy.

Sunday, January 4, 2015

Returning to the fold

Years ago I experimented with index investing. I bought iShares back when these units were under the control of Barclay's and I opened a TD self directed account just so I could buy the bank's e-series funds. I also had a few mutual funds (TD, CIBC, RBC, Septre and Mawer) but overall I put relatively little money into these funds. With each passing year I jettisoned more and more of those former holdings and I'm not sorry I did. I did just fine on my own.

Now, going into my seventh year of retirement, I find I have just suffered my first truly bad year. I got whomped and whomped soundly. My investments are still pumping out the cash needed to live in retirement but the overall value of my investments is way down from what it was just a year ago.

When my portfolio was at its peak, I should have changed horses. My approach was running out of steam and I didn't notice. The winner, when not only capital growth but also dividend payments are considered, was the Complete Couch Potato portfolio. The CCP didn't pay the most in dividends, my approach did that, but the CPP paid well and clearly the risk/reward was way better with the CCP. I can still sleep at night but the losses I've suffered would leave many small investors tossing and turning with anxiety.

Click on the link and check it out. This portfolio turned in an amazing performance in 2014. Admittedly there were mutual funds that beat it but the complete couch potato tended to deliver great dividend bang for the buck, a rapidly growing buck. Today this portfolio is up well into double digit territory since early January 2014. This is thanks in large part to it U.S. holdings.

The TD Monthly Income, which I follow, was also a winner, and if teamed with the e-series U.S. index fund to create a balanced portfolio with exposure to the States, it delivered even better returns than the CPP. Where this mix fell behind was in the dividend payout. The ETF mix was clearly the better choice here. As a senior, I have to begrudgingly give the nod to the ETF mix above over the mutual fund approach mentioned.

Am I going to dump my present holdings and move my investments to last year's winners? No, I'm not. Chasing last year's leaders is rarely a good idea. I still have faith that some of my holding will outperform the market. I'm on board the individual-stock-owning train now and I want to be still riding when it pulls into the station. I don't want to be one of those who buys high and sells low.

One of my holdings, Norbord, has cut its dividend as expected but it is still yielding better than four percent. I believe I see a nice pop in value in its future. Crescent Point Energy should rebound when the global oil market recovers a little. My banks stocks are also down from their highs but the dividends are solid and I see no benefit to selling what I bought at fire sale prices back in 2008 and 2009. I can go right through my entire portfolio and for most holdings I can see a brighter tomorrow.

As my portfolio recovers, and hopefully at a quicker pace than the index-based portfolios, I will again revisit the idea of moving my investments back into the index fold. (At the moment, I am doing better than my old personal benchmark nemesis -- the TD Monthly Income fund. We are only days into the new year but I am still willing to take a little comfort wherever I can find it.)

If you follow the links to the Canadian Couch Potato site, there are other suggested portfolio mixes that also performed quite nicely in 2014. I mention these only because I followed them and was impressed.

This is not to say the approaches not mentioned are not worth considering, this is simply to say I have not personally back-tested them. Do your homework, back-test some of these portfolio approaches and if you find anything interesting, write. I'd love hearing from you.

Me, I'm following two new test portfolios. I created one using the TD Monthly Income and another using the Complete Couch Potato mix. Both are based on the value of my actual portfolio at the end of 2014. As the year progresses I will post how these two imaginary portfolios are preforming relative to my actual investments.