Sunday, January 31, 2016

Maybe I should not write off mutual funds

Years ago I moved out of mutual funds and into ETFs and stocks. I bought into the argument that the high MER charges put most mutual funds behind the eight ball when it came to competing against ETFs. Maybe I was wrong.

At the start of the year I created ten ghost portfolios using Portfolio Manager offered by TD Waterhouse. I'm not going to go into too much detail as it is only one month into 2016 and a lot can change over the course of a year.

That said, the portfolio that is easily leading the pack is one composed of just two mutual funds:

  • TDB3085 - TD Monthly Income fund D-series
  • TDB3086 - TD U.S. Monthly Income fund D-series

With just those two funds making up the entire portfolio, this portfolio is clearly ahead of the pack. At the moment it is even well ahead of the Couch Potato portfolio that I am tracking. I'm an assertive investor and so if I were following the Couch Potato advise I would have a Vanguard ETF Assertive Couch Potato portfolio or a TD e-series Assertive Couch Potato portfolio. My D-series mutual fund portfolio is easily worth a full two percent more than either of the Couch Potato offerings.

I'm surprised but this possibility wasn't totally unexpected. The TD Monthly Income D-series is nothing more than the TDMI that has been around for years with some of the fees cut back a little. I've always like the monthly income fund, I had a good chunk of my portfolio invested in it. When the D-series came on the scene I converted from the I-series to the D. It saves me a little money.

The fund tries to invest in solid dividend paying stocks, it has a balanced approach to portfolio creation and so holds all the expected bonds and it follows a portfolio allocation plan I can appreciate. Plus, the fund does not buy and sell to an undo extent. The last time I checked the portfolio turnover was less than 10 percent annually.

Come back in a month and I'll update you then.

And oh, were there any big surprises? Yes. My personal portfolio had done better than the Couch Potato entries at this point. I don't expect this to continue as the CP has a much better mix and I continue to believe diversity is king. Still, I'm doing nicely and my dividends are piling up as they should. All is right with my world despite the crashing market.

Tuesday, January 26, 2016

Even Canadian Banks Caught in Stock Market Turmoil

Today ScotiaBank was downgraded by Moody's. A bit of a surprise but not totally unexpected. I have long wondered if the ScotiaBank's exposure to Central and South American economies might come back to bite it.

This is not a new story. Canadian banks have been heading generally down for the past two years. Google "Canadian banks downgraded" and you will have lots of hits and many are many months old.

The banks are not my only problem. Even companies that are outperforming expectations are suffering in this weakening market. This morning, when I updated my portfolio, I discovered that my portfolio is revisiting recent lows.

Looking at BNN I see the Canadian market is up in the double digits and oil is almost up a buck. I should gain a little ground by the end of today but I'm sure the turmoil will continue. I may make some new lows before the market jumps on the next passing bull.

I am going to continue to hold everything I've got and at some point add a little more. I want to come out of this with an improved annual income. I might not, but it is a goal.

Thursday, January 21, 2016

Warning: Monitor your self-directed account carefully

This is just a quick warning: Monitor your self-directed account carefully. Banks make mistakes.

At the beginning of the year, I attempted to meet the minimum withdrawal demands that apply to my wife and my RIFs. After a week without anything happening, I phoned and discovered that my order had gone off to computer limbo.

In the end another agent entered the picture and took over from the first. This person resubmitted my request and I thought all would now be fine. It wasn't. After about a week, the transfer was completed but incorrectly. This morning I discovered that my wife was now the owner of an unwanted mutual fund with a MER north of two percent.

An investment she liked was removed from her RIF and a completely different investment, and one she didn't want, was moved into in her TFSA. This is not the way an in-kind transfer is supposed to work.

I called the bank and got in touch with the second agent. The one who had handled the in-kind transfer that has gone awry. It became quickly clear that an error had been made and the agent promised me that all would be made right in three business days.

My advice:

  • Keep notes.
  • Get the agent's name with whom you dealt.
  • Get the agent's badge number or extension number.
  • Write down all relevant figures.
  • Note the time, the number of shares involved and write down all cash values.
  • Printout a copy of your account as it looked before you began buying or selling or whatever.
  • Printout a copy of your account as it looked after the error was discovered.
  • Check your account daily. This is not the first error I've seen.

The more complicated the undertaking, the more one must keep notes, etc.

Friday, January 15, 2016

Market turmoil not new. Does Vanguard provide an answer?

As I write this both the Canadian and American markets are down well into the double digits. The reports on the regular newscasts are tainted with a touch of panic. I shake my head. This has happened before and this will happen again. If you are not prepared for a slump, you should not be in the market. Relax.

Granddaughters keep market fall in perspective.
My grandchildren are here today and so I cannot write much but maybe next week This afternoon the most important thing is to build an Olaf snowman. I'm putting the tumbling market on the back burner. I'll try and have this post completed by Monday. Now, where's my Olaf snowman kit?

I track my money using Excel. But Microsoft no longer supports my version. And to complicate matters, my laptop is loaded with newer Microsoft software that is not compatible with my present program. When I inquired, I discovered an upgrade to make all right again is expensive. At least this senior living on a tight budget finds the charge excessive.

I did a Google search and discovered LibreOffice freeware. I loaded LibreOffice onto my laptop and encountered no problems. I will make a donation and I may switch allegiance. I'm testing LibreOffice on my main computer as I write.

I also found a personal budget template from LibreOffice. This template provides an excellent base for building a complete personal wealth tracker.

I find there is nothing better than an up-to-date spread sheet to keep one's market fears in check. Possibly I'll find a way to post my spread sheet and share my approach with the world. Keep an eye on this post after Monday, Jan. 18th.

Thanks to my spread sheet, I not only knew how much my total portfolio was worth as the bell sounded Friday morning, I knew my total expected dividends for the coming year plus my total other income (OAS, CPP and a small pension). Because I have been keeping an Excel-based budget for years, I have a clear idea of my total expenses for the year. My spreadsheet keeps me constantly aware of how much I must collect from my investments in order to keep the wolf away from the door.

My spreadsheet confirms I still have lots of wiggle room. I can easily survive a few cuts to my dividend income. There is clearly no reason to panic. In fact, it is a good time to watch for a bottom and to pick up some stock at fire sale prices. Dividend cuts or not, I plan on buying and those purchases will, with a little luck, increase my dividend income.

It is interesting to note that if I had chucked all this at the beginning of the year and converted my portfolio to the capped portfolio strategy one can find on the Vanguard site, I'd be much better off. Of all the approaches to constructing a portfolio I am tracking, the Vanguard one is performing best. It will be interesting to see if it produces the yield I need to live. I may yet go the index root.

Wednesday, January 6, 2016

Screener portfolio holding lead.

It is only January 6th and so it is a little early to say much about the performance of my various demo portfolios. But it is interesting to note that the best performer has been the portfolio of a dozen stocks selected using the Screener function of my self directed portfolio software supplied by TD Waterhouse.

For me, what will be important is the total amount of cash delivered by each portfolio. Clearly, if the portfolio performs well enough, selling a little of the portfolio to raise money to live in retirement is not a problem. But, I much prefer a well performing portfolio churning out adequate cash to live. My present portfolio delivers enough dividends to fund my retirement but it has not held its value well in the present market. Hence, this little portfolio experiment.

I've mentioned the Couch Potato as a source of information on how to structure a portfolio to run almost on automatic pilot. I've run tests with the previous couch potato portfolios and in my most recent tests they have done quite well. Any portfolio with American market exposure has done well over the past year or so. The American market has been on a roll.

Another source of portfolio strategies is the Vanguard Group in Canada. I have used two of their strategies in structuring my ten demo portfolios.

Monday, January 4, 2016

A mock battle of recommended portfolios.

My best performer was a portfolio of stocks.
The stock market wilted today. Globally it was a bit of a blood bath but Canada was spared the worst. I was down some but nothing to lose any sleep over.

As I mentioned, I've set up ten portfolios, some mirroring portfolios recommended by well respected experts. I may be down but I wasn't at the back of the pack.

I'll consider revealing the make-up of my ten imaginary retirement portfolios when a few month have passed. Maybe a pattern will emerge. Maybe some portfolios will be consistent winners and others consistent losers. We'll see.

The blue bar represents the starting value of each portfolio. All but one left the starting gate almost at the same point. The small differences are due to the number and type of investment holdings. The TD e-funds carry no fees while the ETFs are like stocks. Each one comes with a trading fee of almost ten dollars. Luckily, these portfolios do not require a large number of ETFs.

One blue bar is noticeably shorter than the rest. This portfolio is composed of a dozen stocks. No ETFs or mutual funds here. It cost the most to build and yet at the end of the day the pure stock play was the best performer by far. (The red bar represents the value of the portfolio at the end of the trading day.)


Saturday, January 2, 2016

Tracking recommended portfolios

I'm a big believer in the Couch Potato theory on investing. The chap behind the Couch Potato blog is one smart dude. I wish he'd been around when I first started investing so many decades ago.

I have wandered far from my original portfolio allocation. I'm pulling in enough in dividends to stay nicely afloat but the past two years have been rough on my capital. I'd be worried but for the fact that all the benchmarks I follow have also had losses. It has been a nasty world for those of us with too much exposure to the Canadian market.

I've decided to determine whether or not I'd be better to simply rejig my portfolio to mirror the recommendations of the Couch Potato blog. To this end I've created three Couch Potato portfolios using Portfolio Manager -- a piece of software offered to TD WebBroker clients.

I've set up a total of ten portfolios and all are starting the year with essentially the same value. The reason there is any difference at all is a result of the fact that all portfolios do not contain the same number of ETFs. Some have only three ETFs while others have five or six. When purchasing an ETF there is $9.99 charge. The more ETFs in the portfolio, the more charges, and the lower the portfolio value on Monday as the ten portfolios leave the starting gate and trading commences.

Some portfolios use TD e-funds which are actually low-MER mutual funds and not ETFs. There is no charge for investing in TD e-funds as long as one stays invested for more than 30-days. (I believe it's 30-days.) With the e-funds I was able put all the money available to work. One does not encounter the odd lots problem with mutual funds as one does when buying stocks or ETFs.

Once a week, or possible more often, I will check how these portfolios are doing compared to my actual portfolio. If I get blown away, it will clearly be time to rethink my investment strategy. (It has not been a bad strategy overall. I have about 40 percent more in my portfolio today than I did when I retired in early 2009 and I have been removing money every year to live in retirement.)

Oh, one last thing. In early 2015 I set up a portfolio using Portfolio Manager that was based almost completely on stocks that came highly recommended by one of Canada's biggest banks. This portfolio was a dog. There were times when every stock in that portfolio was under water. It performed much worse than my ragtag portfolio.

This year I have one portfolio created using the stock screener provided by TD WebBroker. I looked for companies that are in the black, have solid earnings and pay a good dividend among other criteria. We'll see how this baby performs. I gave the screen I created. I gave it a name and saved it. Once a month I'll run this screener again and decide whether or not to update the portfolio.

I actually have a good feeling about this all stock portfolio as it should pump out the money I desperately need to live.

Parking Cash

Getting any meaningful returns on a little cash is awfully difficult in the present low-interest rate environment. Vanguard has posted a chart comparing interest rates paid by various financial institutions in Canada. Even though these are some of the highest yields in Canada, not a one pays even two percent.

Where do you park your excess cash? In my self-directed portfolios I like to use investment savings accounts. As a TD WebBroker client, whenever dividends appear, I immediately transfer the funds into a TD investment savings account (TDB8150). This pays .75% interest today -- Jan. 2, 2016.

There are no fees associated with a TD investment savings account. There is no minimum time period that funds must remain in the account. And there are no withdrawal fees. Other banks offer similar investment savings accounts -- I had one with Scotia iTrade (DYN1300) back when I had a self-directed account there. But be careful: the rules change from bank to bank. I keep an eye on the rules affecting the TD offering, as well. I don't want to get any nasty surprises in the form of unexpected charges.

At the encouragement of a friend last year I converted my RRSPs to a RIF. Come Monday, January 4th, I'll be withdrawing the money in order to get through the coming year. I'm planning on opening a Scotia Bank Momentum Savings Account to handle a good chunk of this money. I understand bonus interest is paid when a balance of $5000 or more sits untouched for 90 days. At the moment the interest paid can be as high as 1.5%. But there is a downside: a $5 withdrawal fee. It doesn't take many withdrawals to negate the interest earned.

I should be able to maintain more than the interest cut-off balance for the majority of the year with no more than two planned withdrawals. The interest may cover a nice dinner for my wife and me at Waldo's in Byron. It's not much but it's much better than nothing.