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.

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