Monday, May 30, 2016

What are others saying?

Retirement 'Bucket' Portfolios for Vanguard Investors

Christine Benz, Morningstar's director of personal finance, writes in the linked article:

The bucket approach to retirement planning is straightforward and makes intuitive sense. The basic idea, as envisioned by financial-planning guru Harold Evensky, is that a retiree holds a cash component alongside a well-diversified, long-term portfolio consisting of stocks and bonds. Knowing that money for near-term spending needs (one to two years' worth of living expenses) is parked in cash helps the retiree cope with the fluctuations that will inevitably accompany the stock/bond portfolio.

I have stuff to plant, ferns and things, so I will read the Benz article carefully later. But, I am posting this link so that anyone finding this post can continue along without me.

I might add that I am doing the bucket thing to a certain extent already. I try to keep enough cash on hand in my various RIF accounts to keep my books balanced for the coming 24 months. The goal is to prevent being forced to sell equities at an inopportune time simply to meet financial demands.

Update on ongoing portfolio testing

Date: May 30th, 2016

My portfolio is up 8.07% year to date. All I can say is, "Wow!" In the years since my retirement, I have let my portfolio drift farther and farther away from my carefully designed allocation model. That said, my portfolio has performed nicely but it has done so in a manner that does not bode well for the future. I'd like to take not a little money but a little risk off the table. My portfolio has a flying-by-the-seat-of-my-pants feel. Not good even if it is working. Too much luck is in play.

So, at the beginning of the year I embarked on quest, a search for the perfect no-brainer retirement portfolio. I borrowed freely from respected sources and created ten dream portfolios using the portfolio manager software offered by TD WebBroker.

Before I reveal how my test portfolios are performing, I must warn you. This test has only been going since January 1st. That is only five months. That is not enough time to make any firm decisions. The markets are a wild ride and a good test needs to run for years and not just months. That said, the results are interesting and there is one thing that I have learned and I will get to that later. Now, to the YTD results.

  • Couch Potato assertive portfolio based on TD e-series funds . . . . . . . . . . . . . .Up 0.28 %
  • Couch Potato assertive portfolio based on Vanguard ETFs. . . . . . . . . . . . . . . .Up 1.09 %
  • My personal try at a no-brainer portfolio using iShares . . . . . . . . . . . . . . . . . . Up  5.98 %
  • My personal try at a no-brainer portfolio using Purpose ETFs . . . . . . . . . . . . . Up  4.69 %
  • My personal try at a no-brainer portfolio using TD Monthly Inc. Funds D-series .Up  3.89 %
  • My personal try at a no-brainer portfolio using TD e-series funds. . . . . . . . . . . Up 0.54 %
  • Vanguard Capped portfolio. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Down 0.32 %
  • My personal try at a no-brainer portfolio using Vanguard funds. . . . . . . . . . . . .Up 0.92 %
  • Vanguard not capped portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Up 1.57 %

I have followed the Couch Potato series for years. The chap who designs these portfolios knows what he is doing. So why have the two assertive Couch Potato portfolio done so poorly? My guess is bad luck. The timing is off. For instance, any U.S. exposure has probably fared poorly so far this year. The market in the States has been lagging the Canadian market for most of the year. These two portfolios will have their day, of that I am sure.

Still, it is interesting that the portfolio based on just two D-series monthly income funds is doing better than the Couch Potato suggestions even though the D-series funds have the burden of higher MERs.

Here is a look at my portfolio mix based on just two D-series monthly income funds.

I will disclose right now that I hold a big chunk of TDB3085 in my personal retirement portfolio. Why? It appears to be the old TD Monthly Income fund (TDB622) but with a lower MER. And I like TDB622. With its mix of stocks and bonds it has much lower risk than many of my investments. TDB622 has been a winner for decades.

Because it is still early in the year and I don't want to make too big a deal out of my so-called test at this early stage, I will only give a detailed breakdown of my best performing test portfolio. My iShares-based attempt.

I think my choice of CBD is self explanatory. It is the iShares balanced income portfolio. It is a one-stop shopping ETF. I've added the REIT exposure and utilities exposure because I have read a lot of articles that said retirees must accept more exposure to both REITs and utilities because of the need for dividend income.

I need to take a five figure amount from my portfolio annually in order to balance my books in retirement. So far the big disappointment has not been the poor overall showing of some of the portfolios but by the dividend yields. I need cash to live and most of these test portfolios are not delivering the income. I'm going to see if I can find a balanced income portfolio that doesn't inflate its yield with return of principle, mix it with some REIT and utilities exposure and pump up my yield while not sacrificing growth. When I have this figured out, I will back test it to the first of the year and compare it to the other portfolios.

Now, to the one thing I have learned. I had a test portfolio based on stocks found using the screener software. This portfolio was the wildest ride of all. During the crash in stock prices early this year, the screener-created portfolio was down in the six figures. If it had been real, I would never have gotten a wink of sleep. Since then it has recovered nicely but the volatility lesson has been learned and noted.

I have deleted the portfolio created with the screener from the test.