Thursday, December 8, 2016

Is Index Investing Really the Best Answer?

I've been badly burned investment-wise by financial advisers. I didn't give a lot to the pros, thankfully, but the percentage of money they lost was amazing and frightening. This is not to say all financial advisers are poor; they are not. Nor are the ones who are wrong today necessarily going to be the ones who are wrong tomorrow.

All that said, among the best bets in the investing arena is the TD Monthly Income fund. The minimum investment in a hundred bucks and the minimum you must add at one time is the same. It is an easy fund to own and in which to invest. (The Canadian one has a proven track record. I'm not as enamored with the U.S. based version.)

At one time the TD Monthly Income fund held only Canadian investments but today it has about six percent in the States and another two percent in Latin America. I'm sure the broadening of the fund's investment vision to include a little from outside Canada is a good move.

At the beginning of the year I created ten educational portfolios using TD supplied software. I wanted to track how various investment theories performed in real life. And I wanted to know if I would be better off simply putting my money into some of the popular index-fund-based portfolios pushed by some very bright people.

It is now almost a year since I started my investigation. At this point, my personal portfolio is the clear winner. I hold a lucky mix of financial stocks, REITS, ETFs, mutual funds. I've made some poor decisions, which I regret, but my portfolio is still quite a way into double digit growth for 2016 and that is after removing a big chunk of money in order to live in retirement.

The red line on the graph to the left shows how one assertive portfolio based on index investing is performing this year (2016).

The green line shows how a mix of two TD Monthly Income funds, both D-series, and a couple of ETFs representing REITs and utilities, performed.

My personal portfolio may hold the top position today, comfortably above the green line, but it has not always been that way. It has been, I believe, the most volatile of the three approaches this year. For this reason, I look at the two lines on the graph and wonder if either will prove to be a better approach to investing in retirement. Only time will tell.

And speaking of time, a year is not enough time to earn bragging rights. For this reason, I am not going to go into any detail as to the exact make up of any of the portfolios. After two full years have elapsed I am going to take a long, detailed look at my test portfolios and reveal my findings then.

At the moment it appears an index portfolio is not a bad place to park one's money for awhile but don't make the mistake of parking your brain at the same time. Stay alert. Keep thinking. You may find a better way to invest your nest egg --  like a TD Monthly Income fund.

1 comment:

  1. I will give my readers a clue as to how I build my best performing, works-on-automatic, portfolio. A big percentage was invested in the Canadian TD Monthly Income D-series fund. A smaller percentage was invested in the U.S. version. This means this portfolio has a lot of exposure to bonds thanks to the balanced nature of the monthly income funds. To give the income a little boost I added a bit of exposure to REITs and utilities. For this exposure think XRE, ZRE, XUT and ZUT. I personally own a couple of these in my own portfolio along with some actual shares in a couple of REITs. The big drawback to this approach is that it does not pay enough in dividends to live in retirement. If this were actually my investment portfolio, I would have to sell some of the holdings annually in order to pay my bills.

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