Monday, July 25, 2016

Performance of my London Life RRSP raises many questions

Do you have a story concerning saving for retirement and receiving either good or bad advice from an expert? I'd love to hear some stories detailing my readers' experiences: both good and bad. Now, to tell my story.

My London Life RRSP has lost more than half its value over the past 16 years.

I'm puzzled. I invested more than $4000 in a London Life managed RRSP some 16 years ago. Today that investment is worth less than $2000.

According to the inflation calculator posted online by the Bank of Canada, just to keep pace with inflation my investment should be worth $5673.25 today. But it's not. It's only worth $1841.49. I shake my head with puzzlement. How is this possible?

I'm retired. All my RRSPs have now been converted to RRIFs except for one: My London Life RRSP. All my RRSPs are now delivering a tidy income, all but one: My London Life RRSP.

If I had put the original sum in a simple monthly income fund, something like the TD Monthly Income fund (TDB622), I'd have $14,836.97 today. My money would have grown by more than 350% rather than losing more than half its value. And how much risk would I have assumed to achieve such stellar returns? Not much, actually. TDB622 is a relatively low risk investment.

I'm not an investment whiz. But even my self-managed portfolios are easily outperforming my London Life investment. My portfolio is the purple line in the graph posted below. Clearly, I am doing O.K. I am up 15.52% YTD. My London Life RRSP YTD is up 6.9%. I'll grant you that 6.9% isn't all that shabby but I must still ask why an amateur-run, self-directed account is delivering more than double the YTD growth of an investment managed by experts?

Note: Last year was a bear for me. This year's gains are erasing last year's losses.

I'm going to call my contact tomorrow at Navigator Financial Corp, which has connections to London Life Wealth Management. I'm going to ask the following questions. I'll post the answers. Stay tuned.

  1. If my original $4196.71 investment had only grown with inflation, it would now be worth $5673.25. But it's actually only worth $1841.49. How is this possible?
  2.  If I had put the original sum in the TD Monthly Income fund, I'd have $14, 836.97 today. Why didn't London Life match the simple and relatively low risk TD fund?
  3. I've called and I've driven to London Life for in-person talks. Nothing that I have done has improved this investment's growth. What do I have to do to get a little fire burning under this thing? (I say little fire because it is too late for a big fire. Too risky.)
  4. I'm not an investment whiz. But I'm up 15.52% YTD while my London Life RRSP YTD is up only 6.9%. Admittedly, this isn't bad but why is an amateur-run, self-directed account out-performing the London Life experts?
  5. How much annual income could I realize today from this investment?
  6. When can I cash this investment in and get back a minimum of 75% of my original investment? Sadly this 75% figure is calculated on a 16 year old dollar amount and not on the inflation adjusted value.


Called London Life

I called London Life and I had a chat with an advisor. It was not the fellow I asked for. He was in a meeting. The fellow on the other end of the line began talking about risk-free investments. I protested that no investment is risk-free.

To be fair, investments claimed to be risk-free do exist. Risk-free investments return the money originally invested plus accumulated interest. A GIC is considered a risk-free investment. I held GICs in the '70s and during two of those years inflation beat the rate of return. I know what it feels like to hold risk-free investments while watching the buying power of those investments shrink. And, as most of us know, recent historically low interest rates have resulted in GICs failing to keep abreast of inflation.

Admittedly, it is rare but GICs can lose buying power. GICs are not totally free of risk. This is a fact and when a client makes it clear that they do not consider any investment risk-free, a sensitive advisor drops the phrase and moves on.

But a few bad years is not my biggest complaint with GICs. It's the good years. They just are not good enough, at least not for me at my age. As I mentioned, back in the '70s when I started saving for retirement, I put my RRSP money into GICs. If I had continued to do so, I'd have been O.K. If one starts early and contributes regularly and generously, the GIC approach can work. But there were years that I didn't have the money on hand to make the generous contributions necessary. After decades of saving, it was clear that I was not going to have enough cash on hand at retirement. My safe, no-risk approach was going to guarantee failure.

At this point, I'd like to refer you to an article on the CPA (Chartered Professional Accountants of Canada) Website. It states that historically GICs have bested inflation by about 2.92% annually. That's not bad and, when teamed with a generous annual RRSP contribution, it is easy to see how this approach could work.

But it is not just the generous contributions that make the GIC approach work. It takes time to allow compound interest to work its magic. One needs to save a lot, save often and do so over a long period of time: decades. My London Life contribution was neither generous in size nor made early in life. I was less than nine years from retirement and I my retirement nest egg needed to grow. I needed to take on some risk.

I cannot fault London Life for making a risky bet for me but I can find fault with the chosen fund. I believe it was a fund that London Life eventually dropped from their line-up. It was a certified financial dog. What puzzles me is why after making a very poor decision at the start, my London Life investments did not recover smartly. Why did my investment not rebound from the initial early financial pounding?

I have been retired since January 2009. My wife and I need money to live and we have to live with risk. We have little choice. If I put money into GICs, I would watch my principal shrink every year. The RIF withdrawal rules would see to that.

If my wife and I put our money into an annuity paying a fixed amount each year, it is easy to see inflation shrinking the buying power of that payment by half or more during our lifetimes. During the first 30 years of my life, inflation ran at about 4% annually. Do the math. That rate if inflation is a killer when it comes to buying power.

I would be willing to look at a creative proposal when it comes to managing my retirement funds. I've talked with a number of financial advisors. Not a one has put anything down on paper. Not a one has addressed my concerns. I would not be surprised to learn that a mix of financial vehicles could meet our needs while minimizing the risks but as long as the financial advisors at banks and insurance companies come across as cousins to car salesmen rather than as experts in a complex financial mine field, I'll muddle along on my own, thank you very much.

The Last Word

I had a chat with Jim Collins, a partner at Navigator Financial Corp. He was gracious, understanding and talked like an adult. He didn't flinch when it came to discussing the problems with my account. For once, no mealy mouth phrasing. He was willing to call a spade a spade and, even better, to call a loss a loss. I feel confident that Mr. Collins is going to try to wrap up this failed investment account in a manner acceptable to all. I wish Mr. Collins good-luck.

Wednesday, July 13, 2016

These funds and ETFs have captured my interest

I am on the trail of the Holy Grail. This is a somewhat well worn path blazed by experts in investing like the fellow behind the Canadian Couch Potato blog and others of his ilk. I am following, but not in the footsteps, of some very knowledgeable investors. I am veering off the path at my peril.

That said, my portfolio is not doing badly but it does not follow the index approach as closely as it should. I have gotten burned once but that was a third degree financial burn. I was caught with minimal exposure to the American market when it soared to new heights. If I'd been following the advise of the experts, this would not have happened.

That said, I have this nagging feeling in my gut that a portfolio of index funds and index ETFs is not for me. To that end, I have been following imaginary portfolios, often created to mimic those advised by others. And these portfolios have not, for the most part, impressed me when it comes to results. They all come with impressive back stories but  . . .

Today I am taking care of grandchildren and so all I am going to do is post a graph of the investments that have caught my interest: TDB622, TDB902, CBD, XRE and XUT. More on this at a future date.

Click on the image to see a large, easy to read, graph.

Tuesday, July 5, 2016

The search for the "easy" retirement portfolio

To read, click on image to enlarge.

 Both my wife and I are retired. I have a defined benefit pension. My wife doesn't. Because I took a buyout and retired early, I was forced to accept about a 25 percent cut in my pension. I also had to file for my CPP early, as did my wife. We were desperate, we needed that money to live, and for that reason we both took double digits cuts to our CPPs.

Thankfully, we were both savers and have lived our lives relatively frugally. We both had RRSPs to supplement our retirement income. We bought banks stocks, REITs, and some oil patch companies that paid nice dividends. We also bought some ETFs and three mutual funds.

Today, our portfolio is a real dog's breakfast. When we retired, I had an allocation plan based on a mix of equity and bond ETFs. It was nicely diversified with Canadian, American and International investments. First, I lost confidence in bonds and dumped our holdings. Then the Yanks looked like they might renege on their country's debts and I sold off the bulk of my American investments. The remaining portfolio is but a shadow of its former diversified self.

I was proud of our portfolio when I retired but today I am embarrassed. I've got to do better. I've got to work out an allocation and adhere to it. To that end I set up ten research portfolios using the portfolio manager software supplied by TD Waterhouse. It comes as part of the self-directed investor package.

Today my dog's breakfast portfolio is up Year To Date (YTD) 5.93%. If it keeps this pace for the remainder of the year, I will be up 11.63% and that's after removing 4.4% of the value of our portfolio at retirement to cover living expenses. We need that annual withdrawal. The money from our portfolio is what keeps the wolf away from our door.

I must confess that I have already scrapped one of the portfolio approaches I was investigating. It was created using screener software designed to pick stocks based on your personal investment goals. The pure stock portfolio that resulted was way too volatile. There is simply no way I could own such a wild beast.

The four portfolios in which I have the most interest are the following:

  • One: composed of just three ETFs: CBD, XRE and XUT
  • Two: composed of just two TD D-series funds: TDB3085, TDB3086
  • Three: composed of just four TD e-funds: TDB909, TDB900, TDB911, TDB902
  • Four: composed of just three Vanguard ETFs: VAB, VNC, VXC

  • The first portfolio is mostly a fund of funds, also called a wrap, with its yield supplemented by a couple of traditional, income paying ETFs.
  • The second portfolio is a mix of two TD D-series monthly income funds. One is Canadian and the other U.S. The TD D-series funds have slightly lower MERs than the comparable non-D-series funds.
  • The third and fourth porfolios are based on assertive portfolios found on the Couch Potato Website. The fellow behind the Couch Potato style of investing is quite knowledgeable. I am quite in awe of this chap. He knows his stuff. Anyone looking at running their own portfolio would be wise to visit his site and read his posts.

And now, without further ado, here is how the four portfolios mentioned are doing half way through the year. And remember, I took a big chunk of money out of each portfolio, an amount in the five digits, to meet living expenses.

  1. Portfolio One is up 5.1%.
  2. Portfolio Two is up almost 1.0%.
  3. Portfolio Three is down by 3.1%.
  4. Portfolio Four is down almost 2%.

It is still too early to say much about the results but there are some interesting things going on. One, the fund-of-funds anchored portfolio is doing quite nicely. CBN, iShares Balanced Income CorePortfolio Index ETF, is an entire portfolio in one ETF. Lots of experts in the financial investment community mock the fund of funds approach and from some back testing I've done, I can understand their doubts about the strategy. Yet, it, with a little help, is besting the other test portfolios.

Two, the portfolio based on two mutual funds is in the black while the ETF based portfolio is in the red. There seems to be almost universal agreement among savvy investment advisors that one should never pay the high fees charged by mutual funds. The high MERs are portfolio killers, it is said. I have always questioned this as funds like the TD Monthly Income have enviable track records. I have always theorized that one could do a lot worse than simply investing in the TD Monthly Income fund. It's mix of bonds and equity has been a proven winner with relatively low volatility over the years that I have owned it.

The two assertive Couch Potato portfolios are both in the red. I'm sure some would argue that using assertive portfolios in this inquiry is an error and they'd be right. Assertive portfolios are not designed for the retired. But, and I see it as a big but, my own assertive portfolio, my dog's breakfast composed of almost all equities, is the leader at the moment.

My goal? I want a simple retirement portfolio that is a little on the assertive side, delivers enough in dividends to help me pay my bills, and doesn't suffer from undo volatility. I don't think I'm asking too much.

Six months into this experiment is not enough time to say much. Come back at the start of 2017 and I may post more complete information on my test portfolios. If I feel I have learned enough, I may tell you that I am selling all and reinvesting in my "easy" retirement portfolio.