Friday, May 22, 2015

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.


  1. If only you have listened to my advice from a year or 2 ago about the Tactical Monthly Income... now you need to find a good global monthly Income fund.
    I am also a big fan of TD Monthly Income fund, but it only has Canadian content... Canada has and will continue to underperform over markets... You needed to diversify 2 yrs ago, and still do.

    I also firmly believe in yield (or free cash flow)... listen to that world free.... this is your investment working for you... why would you not want yield (especially low risk yield?) I am sure you know dividends across all major developed markets account for over 65% of total return... yes that high... why in the heck would someone ignore the portion that has contributed to majority of growth in the markets.

    You are doing a great job managing your portfolio, but need to diversify some from Canada.

    1. How right you are. When the American congress was talking about reneging on debts, I decided at my age I was no longer interested in having money invested in the States. What an error!

      A bank adviser told me once to never ignore the biggest market in the world: the American market. I did and paid for it.

      Adding the TD US index e-fund to a holding made up of only the TD Monthly Income would have been an amazing hold over the past 24-months. My portfolio is still pumping out more income that I need to access in retirement but I have to confess that the overall growth of the portfolio is no longer anything to brag about.

      My Canadian financials have stalled and my Canadian energy stocks are withering. If the present correction continues, I will see this as a buying opportunity and re-enter the American market -- a market I should never have left.

  2. Reading what you wrote... Again does not sound like you are listening. The U.S. market has had a great run... I am not telling you to get 100% out of Canada or US but there are other markets too. I would encourage you to have a neutral waiting on Canadian, US and INTERNATIONAL equities. We believe Europe is where the U.S. was 2-4 yrs ago.

    I would also caution... We are in yr 7 of a bull market. Economic Cycle are on average 5-7 yrs. Most portfolio managers (including TD) view a market correction within the next 36 months (I see it within next 24). We have moved our clients to defensive equities... I would suggest a similar move... Or trimming back your equity position so when the correction hits (and it will) you can take advantage and re-deploy your equity.