Rockin' On: Money

Following old friends

2012-01-23T11:17:00.000-08:00

I like to think that I make my investments only after giving the whole matter some careful thought. Once something is part of my portfolio, its very presence gives it a certain glow of value in my mind. This is not always earned, I make mistakes, but it does seem to be a good approach that works for me.

This year is unfolding very nicely so far. Oh, I think there will be a correction, there's always a correction in the future. But, the gains made today will give my portfolio room to crash without suffering too much damage in the fall.

Not being good at timing the market, unless I see one of my buddies falter, offering an impossible to resist buying opportunity, I am holding pat. I'm just going to sit and let the dividends accumulate.

Stuff in my portfolio that I'm watching:

EWH (iShares MSCI Hong Kong Index) - This has taken a kicking lately and is now clawing its way back. It is still down 6.23 percent from when I bought in. Yield is 2.43%.
PWT (Penn West Petroleum) - This is down big time from when I bought it years ago as an Income Trust. Ouch! But it is up nicely when compared to my most recent entry points. Many analysts see PWT heading higher, reaching prices that will offer me an opportunity to get out with all my money. While I wait, PWT pays a nice dividend that looks safe. Yield is 5.0%.
PEY (Powershares ETF High Yield Equity Dividend Archievers Portfolio) - This one is the only one of my personal investments in the U.S. market that is still recovering from the big crash of 2008/2009. It is still down today 17.58 percent. Other U.S. investments, like SDY, are up. For instance SDY is up 2 percent. While I wait, PEY pays a monthly dividend. Yield is 3.7%.
PRQ (Progress Energy) - This would be a big drag on my portfolio performance if it were not for the fact that I have less than two percent of my money invested in this natural gas producer. As the prices have come down, I have averaged down, and I believe an exit point will open up near the end of this year or sometime next year. I may be down thousands but I'm not worried over the long term and it pays enough of a dividend to ease the pain while I wait. If it declines in value anymore, I may buy a few hundred more shares. Yield is 3.6%.
DRW (WisdomTree Trust Global Ex U.S. Real Estate Fund - I bought this for the dividend and I hold it because I own it. At this time, the dividend, as far as I am concerned, is only about six percent. DRW missed paying its December dividend. This has resulted in the expected yield being cut by about 50 percent. Unfortunately, this ETF is down too far to make me feel comfortable dumping it while it still is kicking out a six percent yield. Yet, I am no longer enamored with DRW. It is living on borrowed time in my portfolio unless it is able to deliver all four dividends this years. If it does, I will rethink my feelings about DRW.

And there you have. Everything else in my portfolio is tickey-boo, thank you very much. I'm still loving:

IPL.UN - up 124.82 percent since I bought it and paying a wonderful dividend to boot. It's a hold. Yield is 5.8%
CPG - up 102.09 percent and the dividends just keep rolling in. I won't part with this one. Yield is 5.9%.
BNS - up 89.71 percent and the dividend has been increased since I bought in. I'm smiling. Yield is 3.8%.

Those are my big wins but my also rans are up in value, nicely cushioned in preparation for the next big dip, and these also rans are all paying dividends that help pay the bills. I'm thinking of:

XRE with a yield of 4.69%.
ZUT with a yield of 5.26%.
RY with a yield of 3.9%.
and my two last mutual funds CIB512 and TDB622, two monthly income funds.

The rest of my portfolio is delivering but not doing anything that makes the stuff standout. Here I'm talking about stuff like XMD, XIC, CPD, SDY, AUSE, PGJ, REM and EWS. REM's yield of 10.76% is worth noting.

Cheers,
And good investing!

Why we place lots of bets

2012-01-20T19:15:00.000-08:00

Earlier this month I placed a bet on Progress Energy (PRQ). I was certain it was destined to go up in the coming year, and if not this year then next year for sure. I bought some shares at $12.10. Since my purchase, PRQ has hit a new low for the past 12 months: $10.27. (See the graph.)

Everyday since I bought my shares, the price has been on a downward path. I'm going to watch the stock in the coming days. If it continues to tumble, I'm in for some more. I think its dividend is fairly safe and that dividend gives this stock some breathing room, in my estimation. If the price dips to $10 or lower, the yield will be four percent or a little higher. That is an adequate yield for my needs.

Anyway, I don't have all my investments in one stock. I own more than PRQ. (No surprise here.) Because I own a rich mix of stocks, I have benefited from the recent mild up tick in stock values. My portfolio is up about $10,000 since the first of the year. The gains have muted the losses suffered by PRQ.

If you've been following this blog, you'll know that I bought a little Royal Bank when it dropped to about $45. RY is up nicely. And a few months ago I bought an American ETF called REM. It pays a nice dividend. I'm enjoying having it in my portfolio and, best of all, it is up about two percent since its purchase.

Around the same time that I bought REM, I bought ZUT. It is up about seven percent since becoming part of my portfolio. My AUSE is down but not by a lot and it is paying a nice dividend which eases the pain. And the PWT that I bought is up almost 20 percent in the few weeks I've own it.

One investment that I loved, DRW, failed to deliver a dividend this past December. I don't care that the Scotia Bank group is reporting its yield as 12.8 percent. In my books I have it down as delivering about a six percent yield. That's still good but it isn't good enough for what I see as the risk. I'm holding but no longer interested in buying anymore --- not even a little.

So, as you can see, I can afford a temporary set back with PRQ. Gosh, I do hope it is temporary. Stay tuned, and sometime in the next 12 to 24 months we'll have the answer --- maybe.

This didn't pay me any 12.8% in past 12 months.

Have a goal; Have a target price

2012-01-11T09:56:00.000-08:00

I like to have a target price for each of my holdings. If something blows by the target, I might lighten up a little. Dumping all can be a poor idea as target prices are not stationary. They are constantly on the move, both up and down. Don't sell everything on an unexpected gain. You can lose out on some nice profits.

So, today I noticed that according to Thomson Reuters, securities analysts revised their ratings and price targets on several Canadian companies, including Crescent Point Energy, 17 Canadian REITs and Penn West Petroleum. I own both Crescent Point and Penn West plus I own the XRE ETF.

News like this allows me to sleep well at night.

Oh, CPG now has the target of $50, PWT is now aiming for $23 and the REITs I checked have jumped from 50-cents to $3.00.

Winning as I lose: PRQ

2012-01-11T06:21:00.000-08:00

This is the last add to this post, which I possibly should rename Losing as I win, or maybe Losing as I lose. Progress Energy has hit $10.55 today. Wow! Didn't see that coming. I am putting in a bid of $10 on some more of the stock. Why?

1 - at $10 the yield is 4%. This is my minimal goal for yield.
2 - the yield seems stable at this time despite the crashing share price.
3 - I still believe in a price recovery. I'm betting it will come this year, but maybe next.
4 - If I get more stock at $10, it will lower my future exit point.

CIBC cuts Progress Energy Resources Corp price target today to C$14 from C$17.25. $14 is more than my purchase price for a lot of my holdings but, in the short term, it is looking very bad for natural gas. Perhaps, if others also cut their target price, the asking price for PRQ will drop some more. I may yet own a few more hundred shares.
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This was added a couple of day after my original post. Progress Energy is testing new lows today. I'm watching with interest. I'm a bit of a contrarian. I'm even a contrarian when it comes to the word contrarian. What's contrary about trying to buy low and sell high. You can never buy low if you aren't swimming a bit against the tide.

I believe one can look back an entire decade and not find a time that natural gas was selling for less than today. The bottom has dropped out of this resource play. So why even consider Progress Energy?

The dividend is not great but it almost pulls its weight. Today that dividend represents a yield approaching three and a half percent. That dividend will help support me while I wait for a recovery in Progress Energy stock. I am certain that this stock will recover; It is just a question of when. I'm quite willing to wait a couple of years for a lift, but I'm hoping for a turnaround later this year.

Will I buy more at these prices? I might but probably not. I've got enough exposure. My average price is lower than my exit point. I'm content. But, if the price should drop to an unimaginable low, like $10, making the yield a full four percent, I'm in for more as I believe, at this time, that the dividend is secure.
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After writing this post yesterday, I immediately tried to buy the 189 shares. I didn't. I have a small TD Waterhouse WebBroker account and it was with money in that account that I wanted to make my stock purchase. The brokerage fee: almost $30!

I called TD and they told me that they had a way of linking all the accounts held by a husband and wife. Under this approach, my brokerage fee would be based on our total household investment rather than just my one small account. This lowered the fee to just under $10. (Not the greatest, but not get-into-a-tizzy high.)

During the day the Progress Energy price dropped significantly. A check of the natural gas prices this morning shows that the NG price is down and my guess is that Progress Energy may drop a little more as the day goes on. I'll watch. (I got my 189 shares at $12.10 and paid a $9.99 fee. So I saved about $135 by waiting a day to buy and by getting my brokerage fees lowered.)

Now to hold on until the somewhat out-of-favour stock recovers a little. When it climbs above $16, I will begin to consider selling. In the end, I want to lower my exposure to energy stocks and as PRQ does not pay a dividend of at least four percent, it is off my financial radar.
___________________________________________

My portfolio is almost back to its all-time high. Yet, some of my investments have done very poorly. Those investments are riding on the backs of my winners. Should I dump the laggards?

One of the disappointing investments is Progress Energy (PRQ). I bought PRQ back in the income trust days. It was a darling with Canadian investors at that time. It is no longer an income trust, the payout has diminished considerably and it is no longer a sparkling jewel in my portfolio.

Few folk are bullish on natural gas. Yesterday, as oil rose natural gas lost ground. Still, the Scotia McLeod Equity Research Daily Edge reports they expect PRQ to hit $20 before the end of the year. It is now around $12.18. (It was about 12.72 when I started writing this post.)

I own 811 shares. I have almost $4000 in dividend cash and could buy enough shares to give myself a nice, round number of shares --- 1000. The yield on PRQ is not as high as I like. It has a yield of about 3.3% today.

I've held PRQ a long time. The oldest shares are down; The newest shares are up. So, I know PRQ could tumble a little in value if it decides to revisit old lows. Yet, PRQ has proven to be amazingly resistant to the downward pull of the bear.

I've got the money to buy some PRQ. The yield is something that I can live with, at least for awhile. The stock offers the potential of offering an exit point that recoups all my investment and then some. It is time to look for some other views on Progress Energy.

Turning to TD Waterhouse WebBroker I learn:

British Columbia shales to boost Progress Energy

Output 5:55 pm ET on Monday Jan 09, 2012 by Thomson Reuters

Jan 9 (Reuters) - Canadian natural gas company Progress Energy Resources said it was targeting to exit the year with about 20 percent higher daily output, as its investment in unconventional shale rock formations in northeast British Columbia spurs production.

A little more digging reveals another target price for PRQ. This one is not quite as optimistic as the Scotia McLeod one. It is $17.32. I also discover that there are 10 analysts saying "buy" and 3 screaming "strong buy." There are 2 muttering "hold" and there are no "sells" or "underperforms" to be heard.

I'm convinced. I'll try and buy 189 shares today and be prepared to sell in the coming year if and when the stock hits $17.00.

DRW Misses Dividend

2011-12-28T09:12:00.000-08:00

Click on the image to enlarge.

DRW was one of my favourite dividend paying ETFs. It filled a niche in my portfolio allocation and delivered an outstanding yield, something in the neighbourhood of 14 percent. I've been considering purchasing another 100 shares since DRW seems to have found a new, and much lower, comfort level. I was going to do a little averaging down in hopes of enjoying a good yield while waiting for DRW to recover some of its lost financial ground.

Today I have to question that move. DRW appears to have skipped its December dividend. I found this explanation on the Internet.

"DRW holds PFICs (Passive Foreign Investment Companies) in its portfolio. PFICs must mark to market each year (in Q4) and realize a gain or loss in those PFIC shares. PFIC loses are offset against PFIC gains, and then against portfolio income. The PFIC losses for DRW this year wiped out the gains and Q4 dividend income, therefore, no dividend distribution . . . "

Check the chart taken from the WisdomTree website. This is not the first dividend missed this year. In fact, according to the chart quite a number of WisdomTree ETFs failed to deliver their expected dividend back in Q2.

Is the ship sinking? No, I don't think so, but it has changed course. I've had investments before that did not performed as hoped and sometimes being patient, holding and waiting, brought its own reward. I'm holding until Q2 of 2012. I will re-evaluate DRW at that time. At the moment, there is a red flag on any buying play associated with this once loved ETF.

This is an excellent example of why one does not put too much into one investment. At this point, I only have 1.7 percent of my portfolio in DRW. This is .2 percent more than my allocation. DRW has actually performed a hair better than planned since I last updated my allocation model.

If I jump ship, I won't lose too much. My disappointment in DRW will not lose me any sleep.

Overweight Canadian bank stock?

2011-12-13T06:30:00.000-08:00

I have a portfolio allocation, an investment map if you will. I follow my investment map as I follow any map; If I think I see a compelling shortcut, I take it.

When Canadian banks were oh-so-cheap a couple of years ago, I bought a lot of bank stock. I invested heavily in the Bank of Nova Scotia when it was less than $30 a share. I wasn't quite so astute, read lucky, with my purchase of Royal Bank shares. Lately, I have tried averaging down a little whenever Royal shares drop below $45.

Today the Daily Edge posted by ScotiaBank contained the following:

[Canadian] bank dividend yields are compelling, P/E multiples low. We expect the market to chase bank dividend yield when systemic risk moderates.

■ Reiterate: Overweight the Bank Group. Reiterate 1-SO on TD, RY and CM. Maintain 2-SP on CWB, LB and BNS, with 3-SU on NA and BMO.

If correct, my shortcut is taking me where I want go. I'm staying my financial course.

Drum roll, please, 65th birthday on the horizon

2011-12-10T04:11:00.001-08:00

Ah, 2012. For me, a fabled year. It was always the year of my retirement, right up until I retired early with a buyout and a slashed pension. Take a pension early, draw on your CPP well before your 65th and possibly suffer a 25 percent cut (or more) in payments. Ouch!

But all's well that ends well, and so far my retirement story is ending very well indeed. I left my job in early 2009 and put much of my buyout funds in my RRSP. It was a good move. My portfolio is up about 37 percent, even after taking out tens of thousands to live. If I could have left my investments untouched, I'd be up 48 percent today.

Of course, the story is not over. It's not over until the Fat Lady sings, or in this case the old, bald guy dies. And even then the story is not really over, my wife has to get by on our portfolio until she too punches out. (With a serious heart disease slowly destroying my heart, I think it is almost certain that my wife will outlive me.)

Still, I'm alive and kicking --- and investing --- and I think 2012 is a good year for taking stock of my financial situation. I track my investments with Excel with one worksheet containing my entire portfolio and showing how closely it follows my allocation model. The truth is, it doesn't. Wild profits in some sectors and fair losses in others have distorted my actual asset allocation over the passing years.

I subscribe to the general rule that one should not remove more than four percent from one's retirement fund annually unless you want to risk running out of funds at some point in the distant future. The problem for me is that I have done so damn well that I am now removing six percent based on my balance at retirement.

On the first day of the month of my birthday, I'm updating my retirement starting balance. If I'm lucky, the amount that I am removing annually will be about four percent of that new figure. This isn't all that important as I only remove dividend income from my portfolio; I do not spend my principal. I like to feel I am respecting my own rules, even if it takes a little bending of the truth to do so.

I'm also going to do my best to bring my portfolio more in line with the allocation model I designed years ago. And while I am at it, I'll rejig the model a little.

I may buy about another $1000 of the TD Monthly Income fund (TDB622).
If it regains lost ground, I'll sell my small number of Suncor (SU) shares.
Likewise, if I get an uptick I'll sell my Progress Energy (PRQ) shares.
I'd like to buy another 300, maybe 400, units of ZUT and then hold.
A remnant of my BTH.UN investment days, VIP.UN will be sold if it enjoys a small rebound.
I'd like to get out of Penn West (PWT) but it will take a jump in the price of oil to reach my exit point.
I'd like to sell some XIC and buy some XMD when the opportunity arises.
And lastly, I'd like to take a flyer on Canfor (CFX) if it cuts its dividend in early 2012 causing a drop in the price of the stock. I like to place a bet now and then. Adds a little spice to the portfolio.

There is, of course, one big fly in the financial ointment --- Europe. How Europe will play out is any one's guess. It looks ugly. I fear it will have repercussions felt around the world. (Hey, it already has.) There may be more pain than gain in the coming year. Still, as I wrote before, there's no need to panic. There never is. C'est la vie.

Lack of Diversity Plagues Portfolio

2011-12-05T17:39:00.001-08:00

This post won't be a long one but it will address a problem with my investments.

My portfolio allocation takes in Canadian, American and international investments, and yet it is plagued by a lack of diversity. Why? Because my goal of enjoying high dividends forces my portfolio to gravitate to the energy sector plus the financials, utilities and real estate sectors.

Personally, this doesn't worry me all that much but still it is a concern.

Of the four sectors mentioned, I am least exposed to utilities. For that reason, I figure I can afford to put my available cash into something like the BMO Equal Weighted Utilities Index (ZUT) or possible the top utilities investments themselves. You see, there are some companies in ZUT that buoy the yield but add to the risk.

How To Invest Online reports that EMA, FTS and CU survived the 2008 crash with much less of a price decline than the TSX Composite. If it's stability one seeks, maybe these are the utility stocks to own. CU doesn't yield enough to be included in my portfolio. The Fortis yield is a little low, but it is still worthy of consideration since my portfolio is yielding almost seven percent at the moment when calculated on its opening balance at retirement.

Emera (EMA) has a yield of 4.1% and closed today at $32.70
Fortis (FTS) has a yield of 3.6% and closed today at $32.58.

A plus for Fortis is that it is again included in the Scotia McLeod Income Plus Guided Portfolio. In the spring, Emera pushed Fortis to the sidelines but that was then and this is now. Today it is Emera that is warming the bench.

I have placed both Emera and Fortis on my watch list.

Picking an ETF

2011-12-05T10:31:00.001-08:00

Finding good dividend producing investments is difficult. In the present economic climate, it can keep one awake at night with worry. Still, I'm retired. I need money to live. I must invest. I have no choice. If I don't, I will have to spend my principal and that is clearly a road to financial ruin.

I demand a minimum four percent dividend. That's the magic number for me: four percent. The general rule is one can remove four percent a year from a retirement portfolio and not bleed the portfolio dry. Of course, if you are doing quite well and surpassing the four percent watershed by a good amount, spend more. For the past three years I've been lucky, I've done very nicely, and I've withdrawn far more than four percent annually.

One ETF I watched for sometime was REM (ishares TS FTSE NAREIT MTG Plus Capped Index FD). I bought 200 shares on a recent dip.

Note the "Low Risk" rating at bottom left.

What attracted me originally was the high yield. Today it is delivering 11.16%. Very nice. High yield attracts but it also warns. High dividends often come with high risk. When I began looking into REM I found that it appeared to have relatively low risk, at least according to Morningstar.

Next, I examined the top ten investments that make up the REM package.

These holdings are generally all holds. Not appealing but not frightening.

I check every one of the top ten investments. As I write this a chap on BNN is talking about NLY. He told a caller that NLY had a great dividend and the dividend was, in this person's opinion, "sustainable."

In the above report, NLY is rated a buy. Note the falling and levelling trend indicator.

At this point, I am getting a feel for the investment. When I did this originally, REM was a blazing buy in my estimation. When I got a chance, I bought 200 shares on a dip. Before writing this today, I did another run through my pre-purchase procedure. REM is more hold today than buy and for me the word hold holds no attraction. Hold says concern. I would not be too fast to buy more REM today. As an owner, and one who is slightly up on his purchase, I'm holding and I'm happy.

I also like to take a quick look at some of the Risk & Reward measurements, such as beta, standard deviation, sharpe ratio. I take these with the proverbial grain of salt but I do consider them before buying.

Note the above numbers and then click the above links to get a full understanding.

Lastly, one must remember that this investment also contains a big measure of currency risk. I've owned Canadian funds that hedged the currency risk and I've owned U.S. investments outright. I've decided to accept the risk and get on with my investing. I have a U.S. investment component to my allocation and that component comes with some currency risk. Maybe I should learn about hedging currency risk. I'm still learning.

But, while I'm learning the approximately $300 I earn from owning REM will help keep a roof over my head and food on the table. Am I worried about owning REM? A little. But, I worry a lot less when I'm dry, warm and not hungry.

Up days cushion down days

2011-11-30T21:19:00.001-08:00

In my last post, I talked about not getting into a panic as the global markets drop in value day after day. And drag our portfolios with them, I might add. I wrote, the markets have "a long way to go before it is panic time. Corrections, even big corrections, are normal."

Today The New York Times ran an article headlined "Banks Act, Stocks Surge and Skeptics See a Pattern." All very true. The Dow was up 490.05 points. The TSX soared as well. But I agree with the concern voiced by The Times, this rally could evaporate.

I've bought all I'm buying on the dips. I'm keeping whatever cash I've got. I'm keeping, as they say, my powder dry. I would be surprised if we did not see more market volatility in the coming weeks and months.

To put today's rally in perspective let's look at the stocks I mentioned in my last post. These were all stocks that I had bought on recent dips. Four of the six were down when I last checked --- a couple by as much as 5%. That's a lot when you realize I just bought all these stocks at supposedly bargain basement prices.

Tonight, I discover:

BMO Equal Weight Utilities Index (ZUT) is up 6.4%.
Claymore S&P/TSX Canadian Preferred Share Units is down .4%. Not much, but still it is in the red.
REM is also in the red, down .8%
PWT-T up 5.4%
AUSE is up 2.1%.
RY-T is up 4.8%.

So, my recent purchases are, as a group, in the black. My income has grown thanks to the extra dividend income and I'm happy --- for the moment.

As I prepare for bed, the Asian markets are up:

Nikkei is up 2.12%.
Hang Seng is up 5.85%.
Shanghai is up 3.43%.

As I went to bed, I thought, "barring any unforeseen problems, tomorrow should be another good day for North American markets." Well, its morning and Europe is essentially flat at 8:30 a.m. EST and the premarket trading in the States is trending lower. I may lose a little of my profits from Wednesday but overall it will be a fine day. My cash reserves will continue to swell as the month end dividends show up in my account.

I'm not gloating over my profits, even though I am up many, many thousands for yesterday. I fear these profits may be ephemeral. I see my growing portfolio as simply being fattened in in preparation of the next famine. If it gets fat enough, it may well weather the coming bear market, and weather it very well.

Whatever, don't panic.

The world's not coming to an end --- yet

2011-11-23T17:27:00.001-08:00

To hear many in the media tell it, the economic world is crashing and burning. It is in a bit of a tailspin, I'll admit. But, it has a long way to go before it is panic time. Corrections, even big corrections, are normal.
Europe is well off its game, as is the United States. China is slowing. We could yet be in serious trouble. But with some luck, we will be through this rough patch in eighteen months to a couple of years. As a chap on BNN pointed out today, the stock markets are usually the first indicators pointing the way to the downturn's exits. That means the markets could be looking at a return of the bulls in a year or so.

But right now, now bad is it really? Well, I have been buying on dips and two recent buys are still on the plus side of the ledger but the rest are wilting.

BMO Equal Weight Utilities Index (ZUT) is still up 4.38%.
Claymore S&P/TSX Canadian Preferred Share Units are up .16%. Not much, but still in the black.

Meanwhile the following are all down and showing signs of further weakness:

REM down 2.9%
PWT-T down 5%
AUSE is also down 5%.
The RY-T that I just bought is down 2.7%.

I'm getting slower and slower rising to the bait of new lows. I'm setting goals. If and when RY offers a yield of 5.5% based on the share price, I'm buying. If PWT drops into the $12 range, I'm buying. And CFX has dropped more than 10% since I started following it. I expect a cut in the dividend come the new year and this should result in another price drop; At that point, it may be a good dividend paying stock to buy.

If I'm right, and I've been wrong many times in the past, but if I'm right, buying on the upcoming lows will position one to enjoy some wonderful gains in the recovering markets. Be warned, I'm always the optimist.

(If this gets really nasty, it could be a good time to look at buying: CPG, IPL.UN, EMA and POW. There are others that will be worth a look, but these are the ones on my wish list.)

Investing for retirement: Have a goal, have fun

2011-11-22T06:22:00.001-08:00

The other night a friend asked about investing. This young woman is already thinking about retirement and is considering a self-guided portfolio inside an RSP as one way to realize her goals. The following advice is for her, but I think it is worth a post.

As I write this, the financial world is in turmoil and possibly heading for another incredible dive along the lines of 2008 and 2009, this promises be a great time to build a solid portfolio for future growth.

The first step in building a good portfolio is to make your first step a small step. Pick up some books on investing and retirement and read them. Your local library will have a slew of these. I especially liked Protect Your Nest Egg by Eric Kirzner and Richard Croft and The Portfolio Doctor by David Cruise and Alison Griffiths. I found both at the library but later bought my own copies. I figured the authors had earned my respect and my money.

At this point you might like to open an online portfolio tracking account with The Globe and Mail, Globe Investor. The basic portfolio tracker is a free service, free being a nice bonus. Build an imaginary portfolio and watch the imaginary profits pour in. If you have dividend paying stocks, the dividends will appear in your imaginary cash balance. This service may be free but it is sophisticated.

Another free feature offered by Globe Investor is the Watchlist. This is handy for tracking stocks in which you have an interest. The Watchlist even tracks dividends. Very slick. (Click on the image below to see my Watchlist at an easy to read onscreen size.)

A partial view of my Globe Investor Watchlist.

I have mentioned dividends a few times now. I am a firm believer in the rewards of dividend investing. Given enough time, dividend paying stocks can dig themselves out of a financial hole. Often investors with a long time frame will put their money in "growth stocks" or mutual funds that promise "growth."

If a mutual fund openly promises lots of upward potential by putting growth in its name, it is also --- but not so openly --- admitting it has lots of downward potential. A dividend strategy vs. a growth strategy is often a contest between the rabbit and the hare. The growth stocks will surge ahead at times but then lose momentum and stall; They will probably lose a lot of their value now and then. At the end of decades of investing, the fitful growth of these stocks is often surpassed by dividend investments. Dividend investments will also wax and wane with bull and bear markets, but their losses are cushioned by the steady flow of dividends.

To see this effect in action try playing with this TD Asset Management mutual fund graphing tool.
In my example, I compared the TD Monthly Income mutual fund --- one of my favourites --- to the TD FundSmart Managed Maximum Equity Growth (Premium Series). Over the period tracked, the turtle wins. (Again, click on the image below for an easy to read onscreen size.)

TD Monthly Income delivers $7727.88 more in this example.

I like the TD Monthly Income mutual fund but it is a bit of an anomaly. Generally, I don't like mutual funds. I've owned some good ones over the years but generally I prefer ETFs or even owning stock outright. The fees charged by mutual funds put them behind before the investing race has even begun. Some mutual funds charge from two and a half to three percent for the honour of having them manage your investment. Those charges can make it very difficult for the mutual fund to outperform a competing ETF, which often charge investors only half a percent or less.

So, get some books, do some reading, understand your goals, work out your asset allocation and play with some imaginary investments using Globe Fund. The final step is to talk with a financial adviser. I am not a financial adviser. Reading this does not count.

Many branches of Canadian banks have people on staff to assist investors and they also have associated businesses where they can send you for advice. I talked with folk at the ScotiaBank and at Scotia McLeod. I also chatted with an adviser I had known for years at the TD Canada Trust branch where I do some banking.

I have self-directed RSP accounts with both TD Canada Trust and ScotiaBank. There are things that I like about both. TD Canada Trust gets the nod from a lot of sources over ScotiaBank but I have found that both have their strengths and weaknesses. As I am not a trader, I am happy with both. I have no strong feelings favoring either one.

To get you started, here is a list of some of my investments:
Bank of Nova Scotia (BNS)
BMO Equal Weight Utilities Index (ZUT)
Claymore S&P/TSX Canadian Preferred Shares / Units (CPD)
Crescent Point Energy Corp. (CPG)
Inter Pipeline Fund (IPL.UN)
iShares MSCI Singapore Index Fund (EWS)
iShares Capped REIT Index (XRE)
WisdomTree Trust Australia Dividend (AUSE)


An average risk investment with higher than average yield.

Lastly, only invest if you are comfortable with losing money, lots of money, in the short term --- and maybe the long term. The financial world is very uncertain today. It is unlike anything in my lifetime. Keep your investments within your comfort range.

I was lucky. I retired at the depths of the recent stock market crash. As the market has been trending lower and lower recently, I have been feeling luckier and luckier. If you find a crashing market encouraging, you may be a natural investor with the nerves to ride out financial storms.

Cheers and good luck!

Money Sense picks 100 stocks for retirement

2011-11-17T09:20:00.001-08:00

Money Sense, awarded the title Magazine of the Year at the 34th Magazine Awards, has a November cover that grabbed me, just as it was supposed to: "Best Stocks to Retire On." "We rank Canada's Top 100 dividend payers," the cover said. I bit. I bought. I read.

It seems the Retirement 100, originally named the Income 100, was started in the summer of 2007 by the folks at Money Sense. Since that time the all-stars* in the list gained 39.2%. Impressive.

* The All Stars

Great-West Lifeco
Husky Energy
Power Financial
Sun Life Financial
TD Bank

A quick check of the 100 revealed, what I would call, a glaring error. Inter Pipeline (IPL.UN-T) is missing. This is a stock that has been listed as an investment in a number of retirement portfolios, and rightly so. I own it and I adore it.

IPL.UN-T has more than doubled its price in the past few years. The shares I own today, in a sense, didn't cost me a penny. You see, I sold more than half of my holdings for more money than my original investment. The four digit annual income the pipeline funnels directly into my pocket is much appreciated.

If you are interest in the Money Sense article, a condensed version is posted online. I think they may be holding back some info in order to encourage magazine sales. Who can blame them? It is certainly not a bad idea.

The Munk Debates

2011-11-14T19:01:00.001-08:00

Summers at World Economic Forum, Switzerland

I watched the live feed of the Munk Debates last night. It was a brilliant pairing: Paul Krugman vs. Larry Summers. Krugman was assisted by David Rosenberg and Summers had back-up in Ian Bremmer.

Krugman is a Nobel prize winning economist, writing for The New York Times, Summers is the former president of Harvard University, Secretary of the Treasury under Clinton and until recently director of the White House National Economic Council for President Obama.

David Rosenberg is a chief economist and strategist with an influential Canadian independent wealth management firm. Ian Bremmer, looking every bit the academic, the only one on stage without a tie, is the American political scientist who created Wall Street’s first global political risk index

The topic of the night: Will the foundering global economy usher in a dismal era for North America similar to Japan's lost decade of high unemployment and slow economic growth?

At least, that is how the Globe and Mail saw the debate. Paul Krugman begged to differ. He said, "Canada has not messed up enough to be interesting." This debate will be centred on the United States and not North America.

The Nobel winner saw the States not as entering a lost decade but of already being deep in one. He described the economy as sour, but with a sourness even in excess of that that stalled the Japanese economy. He defended his position by falling back on the PPE approach: The Proof of the Pudding is in the Eating. For him, the United States clearly is now eating sour, perhaps even humble, pie.

Both Krugman and Summers agreed on a number of things, one being that the U.S. stimulus program was too little and too brief. It was inadequate.

An interesting twist to the Monday evening debate was that both Krugman and Summers come from the left wing of the political spectrum in the U.S. They both agree on a great deal. For instance, they both agreed that the engine driving the American economy is broken; Both made reference to John Maynard Keynes "magneto trouble" metaphor.

In Keynes day, engines had a magneto powering the spark plugs. Keynes famously said, "We have magneto trouble," as he compared the stalled economy of the Great Depression to a broken generator in an automobile engine. According to Keynes, repair the economy's magneto and the economic engine will purr once again.

Krugman sees the American political system as completely dysfunctional and this leaves him feeling deeply pessimistic for the States. If he does start to feel a little upbeat, he said, he watches another GOP debate and changes his mind immediately. America's economic magneto is not going to get fixed any time soon.

Krugman made it very clear that he sees "no reason to believe the U.S. will do better than Japan."

Summers, on the other hand, said that the Japanese problems were far different than those affecting the United States today. For instance, in Japan housing prices tumbled to 15 percent of their previous value. This has not occurred in the States - yet.

Summers pointed out that the U.S. is still "the place where everyone wants to come, where everyone wants to put their money." The world's biggest and most dynamic economy will not be brought to its knees for an indefinite period, according to Summers. The States is simply too economically resilient for that.

Quoting Churchill, Summers said, “Americans can always be counted on to do the right thing, after they have exhausted all other possibilities.” The magneto will get fixed despite of, or in spite of, the present political gridlock in Washington.

Summers argued, "things are never as bad as you think they are," and added optimistically that in politics, "the transition from inconceivable to inevitable can be very rapid."

The panel touched briefly on the Occupy Wall Street movement. I believe it was David Rosenberg who said the movement was partially powered by the strong backlash against excessive CEO pay and the golden parachutes protecting them from falling into the financial abyss like so many others in today's economy.

Summers pointed out that there are brilliant business leaders, like Steve Jobs, who earned their great wealth. He argued that some economic inequality is not only to be expected but it is good. We need "to recognize that a component of this inequality is the other side of successful entrepreneurship; that is surely something we want to encourage."

Krugman brushed this argument aside: Almost none of the wealthy CEOs under attack are like Jobs. Almost none.

So, what did I take away from the debate. One: it's good to be living in Canada. Canada was mentioned a number of times as a country that has dodged the worst of the present economic malaise affecting the globe. Investing in Canada and Australia, as I am doing, is not a bad idea. One might even add Sweden to the list of countries safely at the head of the pack.

Political scientist Ian Bremmer said he would advise the Canadian government to hedge their bets when it comes to trade. Looking east to China and the rest of Asia is a good plan. He made clear he was not thinking of closely linking Canada's economy to China's in the same way that Australia has done. Canada is positioned right next to the States and an ocean away from Asia. Still, hedging one's bets is often an excellent plan.

I believe Prime Minister Harper and Finance Minister Flaherty are already taking that tack.

Will the Americans suffer a lost decade? They might. Will Canadians be pulled down with them? Maybe, but maybe not. Maybe Canada will motor along a little above the worst of the economic storm. I'm going to keep buying on the dips and praying on the dives. I guess I'm a Larry Summers optimist tainted by Paul Krugman negativity.

Warning: Don't just buy the dividend.

2011-11-14T06:52:00.001-08:00

I'm always on the lookout for a good dividend paying stock. The other day I read a blog extolling the virtues of Canfor Pulp Products Inc.

The double digit yield (14.16%) was keeping this dividend-driven investor very happy. Curious, I did some research on CFX.

The following is from the TD Securities Morning Action Notes:

"With a deteriorating pulp market outlook, we expect the [Canfor] Board will reduce the dividend in early 2012. . . . Under our current forecasts (using US$875 per tonne for North American NBSK pulp in 2012), we believe the company can sustain a $0.20-$0.25/share quarterly dividend during 2012. . .

"There has been a significant negative shift in pulp market sentiment in recent weeks – we expect conditions to get much worse before they get better. . . . discounts are widening and spot prices are declining fast. North American spot prices are in the mid-US$700 per tonne range with unconfirmed reports of one-off deals in the mid-US$600 per tonne range. . . .

"Historically, the performance of CFX tracks pulp price momentum (exhibit 2). More recently, the
relationship has decoupled as Canfor Pulp’s dividend has supported the share price. With ourexpectation for alower dividend in 2012, we expect a tighter relationship going forward."

CFX has a target price in the area of $13. If I can pick it up for $9 or less, I might buy a couple of hundred shares. The 20-cent per quarter dividend would then yield about 8.9%. Over the long term, I have problems with owning a pulp products company. It's a business with way too much volatility for my comfort level. I would watch the target price and sell at an opportune moment.

I love a good dividend but a good yield alone is not enough to entice me to buy.

(Note that the investor I'm was talking about at the beginning of this post appears to a bought her shares of CFX at a good discount compared to today's price. It was a good buy for her back then and it may be a good buy for me in the future. But I'm not convinced that it is a good buy for me today.)

Placed a bet on the Royal Bank

2011-11-10T12:58:00.001-08:00

I did it. As I suggested yesterday, I picked up 100 shares of Royal Bank (RY) at $45.01. This should give me a yield of 4.8 percent. As this investment is inside my TFSA, this is untaxed income. I will get to keep, or spend, it all.

Will I lose my shirt in the short term? Should I have waited? (Hey, at the close I had already lost a dollar.) At the best of times it is damn hard to time the market. In the economic climate today, I think it is impossible.

Now, what to buy next? I've still got a little cash itching to be invested sitting in my TFSA.

Getting the RSP money out

2011-11-08T11:32:00.000-08:00

The recent bear market has given retirees, like me, an excellent opportunity to set the stage for removing some funds from our RSPs. I figure now is the time to buy additional stocks or units of investments that I already have in my RSP portfolio, but I will buy these outside my RSP and inside my TFSA instead.

For instance, I own Royal Bank inside my RSP. Recently it has been selling at levels lower than my book price. Result: I'm buying more RY but this time I'm buying it inside my TFSA. When RY climbs, possibly as much as ten dollars or more, I'll sell an amount of RY inside my RSP equal to what I own outside my RSP. This will bring my portfolio allotment back in line.

I end up with a lot of cash in my RSP to be removed in order to live. Numerically, I retain all the shares of Royal Bank I started with, but some shares are now outside of my RSP, my overall book price has dropped, and my allotment is dead-on. All dividends are still available for covering living expenses but they are no longer all being taxed. Nice.

DRW_Too good to be true?

2011-11-04T11:40:00.000-07:00

_______________________________________________

This info was added Dec. 28, 2011. As of today it appears that DRW will miss paying its fourth quarter dividend. Ouch! The overall dividend yield for the year was more than 10 percent but still I was expecting about $400 come the end of December.

What happened? I found this explanation on the Net:

"DRW holds PFICs (Passive Foreign Investment Companies) in its portfolio. PFICs must mark to market each year (in Q4) and realize a gain or loss in those PFIC shares. PFIC loses are offset against PFIC gains, and then against portfolio income. The PFIC losses for DRW this year wiped out the gains and Q4 dividend income, therefore, no dividend distribution . . . "

Not recommending these but I own 'em.

2011-09-17T04:54:00.000-07:00

"DRW holds PFICs (Passive Foreign Investment Companies) in its portfolio. PFICs must mark to market each year (in Q4) and realize a gain or loss in those PFIC shares. PFIC loses are offset against PFIC gains, and then against portfolio income. The PFIC losses for DRW this year wiped out the gains and Q4 dividend income, therefore, no dividend distribution . . . "

For retirement start saving early and save lots

2011-09-16T20:43:00.000-07:00

I read the following in the Globe and Mail today:

"[a declining market] is a rare opportunity to be treasured, if you can build a retirement portfolio of strong companies with dividend yields of 5 per cent or more. If you have had good advice or been smart yourself, you may just be able to take advantage of these investments in the coming weeks and months. If it is built right and timed right, you may just start your retirement with one of the best pensions around."

This is good advice. Until you actually retire, you will not know how much income you will need. There are lots of sites on the Web with estimates of how much you will need. These estimates are usually expressed as a percentage of your final annual income.

The estimates vary greatly and reality varies even more.

I live in a rambling, three bedroom bungalow. It is a perfect home for a retired fellow with a heart condition. Perfect that is until something needs repair. This summer my wife and I had to have a new roof. This cost $15,000. Ouch!

And behind our home we have large hill with a retaining wall going right across our rather wide, suburban lot. The original wall was made from stacked and interlocking railway ties but after 25 years it was completely rotted. We had to have a new wall --- about 55 feet long and six feet high built. I haven't got the total bill but I'm sure it will be another good one. Ouch again!

And it wasn't in the budget, but I had to buy a new car. I got a 2011 Volkswagen Jetta TDI. On the bright side the payments are only about fifty dollars more than what I had been paying for my old Saturn Ion and the new beast is delivering more than 40 mpg in the city. Still it wasn't in the budget. Ouch, yet again!

What I'm getting at is that one not only has to have money to cover day to day expenses but enough money to cover the emergencies that crop up with some regularity in life: furnace repairs, air conditioner maintenance, washer and dryer repairs, snow tires and rims, etc.

Don't be cheap when planning for retirement. If you do manage to save too much, you can always take a cruise to celebrate. If you don't save enough, not taking a vacation will be the least of your worries.

FYI: Keep a record of your annual expenses. If you use Excel you can easily average your annual records. It is really not that time consuming and you will be surprised at how much it actually costs you to live. I credit my careful records for giving me a good handle on what retirement was going to cost.

A rough week coming up

2011-09-12T02:30:00.000-07:00

Can't sleep and so I got up and checked the Web. I learned that the markets in both Asia and Europe are down and down a lot. The Greek default situation has flared up again - big time.

I'm mentally preparing myself for some big losses in the coming days.

Before all this global financial stuff began unraveling I created a spreadsheet to estimate of my maximum losses in what I would term a financial meltdown. I am nowhere close to those absolutely horrid numbers but another potential daily hit of possibly two percent or more is frightening.

Oh well, it is too late to bail. I'm going to just try and ride this out. It is the 12th of the month today and by Friday I will have a nice bundle of dividends swelling my cash accounts. The 15th of each month as well as month ends are my paydays. This month, September, is a special treat as some investments only pay dividends every three months. September is one of those months.

And December, the end of the year, is only about three months away. December is my biggest month for income. As the dividends roll in, I'm going to keep putting them into what I see as good dividend paying investments. Buying low, or at least believing that I am buying low, should ease some of the financial pain I am about to endure.

If the markets have stabilized by December, maybe even recovered somewhat, I'll be even happier. Maybe I'll even sleep better and not be up blogging well before dawn.

Cheers,
Good luck in the coming week!

Portfolio yielding about a six percent

2011-09-07T14:15:00.000-07:00

Let's take a look at some of my recent buys mentioned in my posts: ZUT is up 6.73%, yielding 5.2%; CPD is up 1.09%, yielding 4.79%; PWT is up about 1%, yielding about 6%; REM is up .22%, yielding 10.74%; AUSE is up .27%, yielding 6.45%. The lesson to take from this is that if one picks a down day to buy, almost anything you buy may well be a winner --- at least, in the short term.

As long as interest rates keep refusing to lift, CPD should perform as expected. It should provide a bit of portfolio solidity in an unstable financial world while, at the same time, delivering a nice dividend. PWT may yet revisit the under $17 price arena. If it does, it offers good value with a steady monthly dividend. Can oil, and even gas, stay down for long?

I bought all the mentioned ETFs and stock. I take my own advice. My portfolio is yielding about six percent in this down market. If it continues to show weakness, I will continue to buy more ETFs and some stock with my dividend flow. I might as well increase my income while I've got a chance.

Tracking your investments and more

2011-08-11T08:27:00.000-07:00

I'm retired. My wife is sorta retired; She works the lunch hour at a neighbourhood daycare centre.

We both have RRSPs and when my wife retired she was given control of the retirement fund her employer operated for her. When I was bought out, I had two retirement plans shifted to my control. That's a total of five plans we must track, if you're counting.

Now, some of these plans are quite small. One given to me by Sun Media is worth about $250. Other plans hold our main retirement investments in retirement. Tracking five plans could be complex but it isn't. I have a Globe and Mail "My Portfolio" account.

I played with the Sun Media/Canoe portfolio tracker but was not impressed. The Globe and Mail got it right. For instance, dividend income and DRIPs are automatically calculated and added to "My Portfolio". Maybe this is now being done by SM/Canoe, I don't know, I haven't played with their portfolio tracker in years. (Maybe someone from SM/Canoe would like to comment on the strengths of their product?)

The Globe's "Watchlist" feature is a really handy. It will update while you watch, if the markets are open. I used the list to follow some ETFs for weeks before committing to invest. Click on the name of an investment and it brings up a screen showing a rich summary of everything related to the stock, ETF or mutual fund in question. Again, the quote shown is updated frequently, although it is delayed 15 minutes. Of course, this does not apply to mutual funds which are updated daily after the close of the markets.

I've been getting some assistance with managing my retirement money from a financial adviser at the ScotiaBank. I simply print out "My Portfolio" and bring it to the bank. One sheet details all our investments, my wife's and mine.

And best of all, the basic "My Portfolio" is free.

If you can be an adult, charge everything

2011-08-10T13:25:00.000-07:00

Surfing the Web I came across some advice from P.J. Harston, at one point the national editor-in-chief of 24 hours and the former Sun Media national business editor. I love how so many financial writers at daily papers have made their careers from bundling widely accepted ideas and presenting them as insights.

When it comes to managing your money, P.J. advises his readers to "get rid of those high-interest department-store credit cards." Use a pay-as-you-go card that you pre-load with cash, he says. For this advise I'm supposed to buy a newspaper? If I followed P.J.'s advice, it would cost me a minimum of a couple of of dollars a year. This is money I cannot afford to remove from my budget.

Flooring: planks and installation on card

You see, I'm retired. I don't have a lot of money. I squeeze every penny. I have discovered that charging almost everything is an easy way to increase the limited buying power of my pension. I charge my telephone bill, my groceries, my car costs. I'm having my roof replaced and I'm charging that. When I had hard wood flooring installed, replacing the worn wall-to-wall carpet, I charged that.

What card do I use? Well, at the moment it is a Canadian Tire Master Card Options Elite. You can't apply for a CTC elite card; you have to be invited. If you charge enough using the CTC card, I think it is about $20,000 annually, CTC contacts you to tell you you've been declared an elite card holder. Your membership is assessed regularly and if your card usage drops, CTC may drop you from the program.

Before this I used a GM Visa card but GM put limits on how much reward cash could be used in the purchase of a small GM car. It was a great piece of plastic when you could save a decent down payment for a GM vehicle. Since this is no longer possible, I have shelved the card.

There are, of course, other cards offering rewards. Look around. You may find one that better answers you specific needs.

Charging everything makes budgeting very easy. One monthly bill details the vast majority of my purchases. My bills peak each December and January with Christmas expenses and there are smaller blips on the months that I must make home and car insurance payments.

I track my expenses using Excel and a spreadsheet downloaded for free from the Web. The sheet is designed specifically for tracking and budgeting income and expenses. I've been using this approach for a few years now. Today there are few surprises. I know where my money goes.

Since you are only charging stuff that you would buy anyway, your costs don't go up but go down thanks to the rewards.

To make this approach work there is only one thing you must do. You must act like an adult. If you can't afford it, you don't buy it. A credit card is not for running up debts. Put big items on the card for a few weeks, when the bill arrives you pay the piper. To pay off a roof or a floor installation you may have to take out a low interest bank loan but you'll enjoy a few weeks of interest free money and earn some rewards for doing so. Never carry an unpaid balance on a credit card. That is not something that adults do.

On buying low or timing the market

2011-08-09T20:36:00.000-07:00

I try to buy low but one look at my portfolio makes it clear that I often don't. This should come as no surprise as it is impossible to know the future.

They say, "Don't try to time the market." That sounds like downright foolish advice. One has to try. Just don't be too upset when you fail. And don't try too hard.

Surely, you were not surprised when the market corrected. There have been signs for months that the market was losing momentum. I took the weakness as a time to dump almost all my mutual funds. They were not doing all that well and they were not delivering the dividends I need in retirement.

I kept only two mutual funds: the TD Monthly Income fund and the CIBC Monthly Income fund. I have approximately 15 percent of my portfolio in each one. Both these funds hold their value rather well in a severe down market. This is not surprising as both are nicely balanced funds with a good chunk of bonds in each. (The CIBC fund pays a better monthly dividend while historically the TD fund has performed a little better overall.)

Today I tried to time the market; I bought on the bounce. I bought the following:

AUSE WisdomTree Trust Austrailia Dividend Fund --- Dividend 6.84% --- Average Risk
CPD Claymore S&P/TSX CDN Pref Share (ETF) Units --- Dividend 4.84% --- Low Risk --- 5 Star (Performs more like a bond investment than an equity one.)
REM iShares TR FTSE NAReit MTG Plus Capped Index Fund --- Dividend 10.46% --- Low Risk --- 5 Star
TD Monthly Income Fund --- Dividend 3.12% --- Low Risk --- 5 Star (I buy this for safety.)
XRE iShares S&P/TSX Capped Reit Index Fund --- Dividend 5.32% --- Average Risk --- 4 Star
ZUT BMO Equal Weight Utilities Index ETF --- Dividend 5.54% --- new ETF but has been in the 1st/2nd Quartile

I've been watching these investments for sometime. I liked them all for a variety of reasons for my retirement portfolio. Today they all were priced for sale, for sale to me.

Tomorrow they may be even better priced. I may have bought early. I know they cost more today than they did yesterday. So, I bought 'em at a price I wanted, for a price I've been waiting for, and I'm not going to worry.

Hey, you can't time the market.

Do I feel lucky?

2011-08-09T11:59:00.000-07:00

Dirty Harry's famous line can be said to more than just wrong doers looking down the barrel of Harry Callahan's Magnum .44. It's also a good warning to those looking to invest in mutual funds. Both situations are fraught-with-danger. This is not always clear to young, naive investors.

I had a chance to think about this this past weekend. I was at a family reunion and a young woman told me how she had just put aside some money in an RRSP. She was encouraged to buy a growth fund as she was in her thirties and needed to play financial catch-up, according to her adviser.

Now, I am not a financial adviser. I'm just a retired photographer. But, to the suggestion that she needed to buy a volatile growth fund, especially at this time in this market, I say: "Balderdash!"

The money had only been invested a few days and already the young investor was down in three digit, red territory. Yesterday may have doubled her losses. I'm sure she is feeling very uneasy about her investment right now. She wasn't told that what can grow can also shrink. She bought a growth fund because she was promised growth. Instead, she got instant shrinkage.

What's in a name? If it's "growth", it's a warning and not a promise. During the big downturn of 2008/2009 some growth funds lost 60 percent or more of their value. This not the scale of loss that young investors expect from a fund carrying the "growth" label.

So, what investment would I have suggested to the young woman? Answer: the TD Monthly Income Fund. Play with the calculator posted on the TD Asset Management website, as I did, and see what results when you punch in your own numbers.

For my example, I invested a hypothetical $15000 in the TD Monthly Income in January of 2008. I made no further contributions. I picked that date as it is before The Big Crash. I compared this investment to a similar investment of the same amount made at the same time and placed in the TD FundSmart Managed Aggressive Growth mutual fund. As you can see, aggressive growth translated into aggressive shrinkage.

Click or double click on the graph for an enlarged view.

FYI, my personal portfolio has earned better than 15 percent annually since I retired in January of 2009. That takes into consideration both The Big Crash and the recent global correction. I do not consider my portfolio to be growth oriented but rather it is centred on dividend producing investments.

AUSE looks good to me

2011-07-13T05:10:00.000-07:00

AUSE was yielding 6.07% yesterday. I bought a hundred shares.

WisdomTree is an ETF provider with a unique take on investing and two very big names attached to the WisdomTree approach: Jeremy Siegel, professor of finance at The Wharton School, and well respected investor Michael Steinhardt.

I'd love to report that WisdomTree has gone great guns since its inception a few years ago, but it hasn't. When times were really rough in the markets, they waffled a bit and fudged their financial algorithms. One WisdomTree ETF based on U.S. stocks saw its investment strategy modified to eliminate all investment in American banks.

Some, of course, see this as reasonable and comforting; The managers react to reality and do not doggedly hold to failing theories. Others see these moves as revealing weaknesses in the basic WisdomTree approach.

Me? I'm a little looser in my demands. WisdomTree strives to deliver solid, dividend-producing companies wrapped up in a nice, tidy ETF bundle. I won't live forever but while I'm alive I need cash flow and WisdomTree is one of the companies I have been turning to.

Lately, I have been hearing and reading good stuff about Australia. When the WisdomTree ETF AUSE dropped yesterday to just under $59, I bought a hundred shares. I need a minimun of four percent yield to live and I'm betting that AUSE will deliver this and more. At the moment, it yields 6.07 percent.

Be aware that AUSE has a number of risks attached, currency risk for one, and I'd do some Internet searches before following my lead. But I like it and if it drops substantially in the coming weeks, I'll average down. If it climbs in value, I'll just smile and cash my dividend.

Still holding DRW, still happy: 13.47% yield

2011-07-04T07:11:00.000-07:00

"DRW holds PFICs (Passive Foreign Investment Companies) in its portfolio. PFICs must mark to market each year (in Q4) and realize a gain or loss in those PFIC shares. PFIC loses are offset against PFIC gains, and then against portfolio income. The PFIC losses for DRW this year wiped out the gains and Q4 dividend income, therefore, no dividend distribution . . . "

I'm upping my cash holdings

2011-06-23T06:09:00.000-07:00

The European markets falling today.

I'm retired. My RSP is my financial lifeline and it is tied to nothing but equities and one very small GIC.

The GIC is so small that until I started writing this post, I had forgotten that I even had it in my portfolio.

The market has been soft for awhile with very low trading volumes. A good friend, also retired, recently went to cash. He's pretty astute and I took his move as a cautionary warning about the health of the market.

Now, the markets have begun to pull back and I have begun to follow my friend's lead, but not to the same bold extent. I am converting some of my portfolio to cash.

My RBC O'Shaughnessy mutual funds no longer fit my portfolio allocation plan and I was holding them only to reap the reward of a continuing recovery after The Big Fall. The recovery seems to have reversed and it seems like a good time to bail. A lot of the economic indicators are negative and Greece is looking more and more shaky.

My Mawer World fund, one of my favourites, a little gem in my book, has also been liquidated. I can't say dumped. The O'Shaughnessy funds were dumped. (I also dumped my TD e-funds. Not a one had recovered completely since the crash and they were not paying the dividends demanded by a retiree.)

My cash holdings are now a little better than 10 percent of my portfolio. Will I sell some of my ETFs and lighten my exposure to equities even more? Maybe. I'll let you all know if I do.

If this has been nothing more than a correction, I'll take this as a chance to refashion my portfolio closer to my allocation plan. If this is a double dip, I now have the cash to take advantage of a bad situation by buying good stocks at low cost. This should increase my chances of having my portfolio make a speedy recovery.

Cheers!

Bonds not always "safe"

2011-04-05T11:40:00.000-07:00

When I first started managing my own retirement portfolio at the urging of a consultant at TD Canada Trust, I trundled off to the library and for a stack of books on investing. I quickly read them all and the ones I really liked I bought. One piece of advice was in every book --- keep a portion of your portfolio reserved for bonds.

In my original allocation model I had about 40 percent of my money in bonds in the form of XSB, the iShares short term bond ETF.

Unfortunately, when interest rates nudged upward the value of my bond-based investments nudged lower. I made the error of deciding that interest-wise I'd do better holding stocks and I dumped all my XSB and moved into equities. This has proven to have been a lucky move. I say lucky because I made out like the proverbial bandit but I hardly think such luck should ever be mistaken for wisdom.

And I must confess when interest rates crashed, the bond ETFs I had held regained their value, climbing back on their old perch. But the bond climb did not come close to the amazing return of my stocks over the same period and so I consider myself lucky.

Well equities, especially many of the ones that I am now holding, have recovered quite nicely and I'm beginning to think about bonds again. But, I am only thinking about bonds; I am not rushing into buying them.

Why? As interest rates climb, bond funds and bond ETFs fall in value. My understanding has been that the longer the average term of the bonds held by a fund, or ETF, the steeper and deeper the fall. According to an article in The Globe and Mail, Bond lovers: Prepare to feel some pain, it is a little more complicated than that but calculating the potential loss is easy if not totally accurate.

Rob Carrick, of the Globe, writes that to determine the potential change in value of a bond fund one must first determine the average duration of the bond fund or ETF. Find that number and you know how many percentage points the fund or ETF will fall if rates climb by one percentage point (the opposite applies, too). To find the average duration he says:

"Bond funds: You may be able to find the average duration for the portfolio in the monthly or quarterly profiles that fund companies make available on their websites.

Bond ETFs: Check the online fund profiles or fact sheets available on exchange-traded fund company websites."

The weighted average duration in years for XSB is 2.61.

I took Carrick's advice and went to the iShares overview of XSB. I discovered that the weighted average duration in years for this ETF was 2.61.

So, if interest rates rise one percent, this fund could be expected to lose 2.61 percent. Ouch! (On the other hand, equities don't even feel they are in a correction until they suffer losses four times that amount.)

Out of curiousity I checked the distributions for this ETF. It didn't even pay a dollar. This accounts for the current yield of only 3.1 percent. I noticed that this was much higher than the weighted average yield to maturity of 2.37 percent quote on the iShares website.

According to the globe, the current yield is not the best yield number for investors to be use. John Heinzl of the Globe has a video, Don't be fooled by bond ETF yields, and he will walk you through the bond yield maze. When Heinzl is done, he seems to come down firmly on the side of yield to maturity rather than current yield. Watch the video and see what you think.

All I know for sure is that when it comes to XSB neither current yield nor yield to maturity is paying enough to attract me. I need more yield. I have bills to pay. I'll take my chances in the equities arena for a while longer with hopes interest rates will climb and the entry cost to get into the bond fund/ETF game will drop.

Maybe I'll get lucky again.

Allow me to bring Emera to your attention.

2011-04-04T08:00:00.000-07:00

Going with the herd can be good if you pick the herd carefully. Click to enlarge.

I'm a dividend investor. I sincerely believe that for most of us dividends are important. Markets can go up and markets can come down. It is not unheard of for one to buy into the market, ride it up, then down, and a year later have nothing to show for months or years of staying invested --- that is if you bought a non-dividend paying stock.

While saving for retirement, I suggest taking those dividends as they appear and immediately reinvesting them. Keep that dividend money working.

Retirement is another game entirely. In retirement you need money to live but you don't want to be cashing your investments constantly. At least, I don't. For me dividend investing is the answer.

In theory, I like ETFs and low MER mutual funds. In reality, I like anything that I feel confident in owning. With ETFs and funds I gain confidence from the rich mix that makes up the ETF or mutual fund portfolio. One mistep by one company is well buffered by the mix. With single stock investments, I say keep the amount invested a small percent of one's portfolio and a mistep will only stub your financial toe and not drop you to your knees.

Please keep all the above in mind as I tell you about Emera (EMA). Emera is one of the stocks on the ScotiaMcLeod Canadian Income Plus Guided Portfolio. It is in the utilities sector and carries a low risk ranking. It's price has been in the $31.70 area recently but it has a ScotiaMcLeod target value of $35. EMA pays a dividend of about four percent. I'd like more, but I can live with four.

If you can live with four and EMA fits your allocation model, maybe this is a buy for you. Do a little research and see what you think.

Cheers!

Buy, sell or hold: Making investment decisions.

2011-04-01T18:45:00.000-07:00

The post today is based on a feature in the ScotiaMcLeod Investment Portfolio Quarterly (IPQ) from the Summer of 2010: Investment Pitfalls and Opportunities: Replacing Psychology with Discipline

This feature was written by:

Justin Kusinskis, CFA – Associate Director, Portfolio Advisory Group, Fund Research
Carolyn Tsai – Associate, Portfolio Advisory Group, Fund Research

Kusinskis and Tsai wrote:

"We continue to live in interesting times – and it seems the times in which we live get more interesting with each passing month. From a high-level perspective, the world (at least economically speaking) is not in great shape."

Over the last couple of years investors, skittish after financially taking a bruising beating in the crashing market of 2008, have been largely avoiding equity funds. Money market funds were used heavily in mid-2008, then they, too, were redeemed in the fall as confidence collapsed lockstep with the Lehman collapse. These money market funds were later repurchased.

As the market recovered, people redeemed their money market funds, but instead of going into pure equity funds, they chose balanced funds and bond funds. The trend was towards a more conservative approach to investing.

Kusinskis and Tsai concluded:

Investors have not had the confidence to return to pure equity funds, even as the market
experienced a recovery from March 2009. This is not consistent with previous up markets where
investors would pile into equities as the market was rising.
Further, the investment choices of balanced funds and bond funds are
considered less risky options. Given the significant volume of flows into balanced funds and
bond funds over the last two years, investors have clearly indicated they have a reduced appetite
for risk compared to previous periods.
It seems investors are reacting more quickly to negative market activity, perhaps an indication of suffering with the last market decline in late 2008 and early 2009, and not wanting this to happen again.

Is any of this ringing a bell? Does it sound like the closing bell of the stock market? I know that I have rejigged my own portfolio allocation to reflect a full 15 percent investment in the TD Monthly Income fund and another full 15 percent in the CIBC Monthly Income fund. 30 percent of my money now resides in these two balanced funds. I freely admit these two funds are my security blanket as I invest the other 70 percent of my portfolio in equities, mostly Canadian but about 26 percent is invested outside the country.

I had no idea I was part of a financial stampede. According to the authors:

"Standard economic models assume individuals are rational and will try to maximize their benefits and minimize their costs."

However, studies have shown that investors are not always rational. Stampedes aren't rational. Investors can be driven by a strong aversion to loss, driven by herd mentality and by something the authors call availability bias.

Loss Aversion: the intense emotional response individuals feel when confronted with losses versus
gains of equal magnitude. Generally, the pain of a loss is approximately double the pleasure generated by a gain.

This is why investors pull out of the market after suffering a loss and hestitate before re-entering. We see the effects of loss aversion when investors grow timid about equities, deciding to sit on large cash balances. Enjoying the "comfort" of the sidelines has a significant cost in missed investment opportunities. Comfort doesn't come cheap.

Kusinskis and Tsai write:

"Investors must realize that staying invested is crucial in helping them meet their long-term financial goals."

Another symptom of loss aversion behaviour is the tendency of investors to realize gains quicker than
losses. Whoa! Does this sound familiar. All too often I've bailed on a good investment after holding on for eons while it flailed about lost in the financial wilderness. This predisposition toward "get-evenitis" can take a real toll on a portfolio.

Folk like to say that a loss is not a loss until you sell and lock in your loss. Not completely true. Sell a dog and take the money from the sale and invest in a winner and you will have far more in the end than simply holding on and hoping desperately to "get your investment back."

It took my financial adviser at the ScotiaBank to make realize that I should dump the Yellow Pages Fund and move on. I did and have never looked back. I took my money and bought Trinidad Drilling (TDG). It was about five bucks to get in and I got out when it pushed eight. If I had held a few more months, I'd have gotten nearly ten dollars. As it was, I got my Yellow Page money back; I just didn't use the Yellow Pages to do it.

It turns out it is not just me who finds it difficult to accept losses. The tendency to sell winners too soon and to hold on to losers too long, is widespread. Everybody wants to at least get even despite the fact that the original rationale for purchasing the stock no longer appears valid. Take your licking like a man and cut your losses.

One needs a well honed sell discipline as well as a solid buy discipline.

Herding: the tendancy to follow others. Often this is a response to uncertainty and a belief that the
crowd is better informed than we are. All too often we lack confidence in ourselves. Symptoms of herding:

Making investment decisions frequently.
Investing in hot stocks/funds because they’re “popular” and selling them when they’re “out of favour”. (This leads to “buying high and selling low”.)
Basing investment decisions solely on the opinions of others. You must look under the hood before you buy the latest and greatest hot-rod stock.

"It is easy to get caught up with a particular investment opportunity, particularly when people see
friends/relatives making a lot of money on a particular stock or fund. The idea that the individual is 'missing out' on the opportunity can be too much to bear, causing them to buy the investment while (more often than not) it is expensive."

For multiple reasons, herding is probably one of the worst investment approaches to take.

Availability Bias: is an overreaction to the latest news. Investors suffering from availability bias give too much weight to readily available information. Symptoms of availability bias:

Choosing mutual funds that are heavily advertised or stocks of companies that are frequently in the
news.
Overreacting to good/bad news.
Believing an “opinion” to be factual.

So, how can we avoid being our own worst enemy? In a word: discipline. Don't be a loss averse investor, or a herd follower but instead one must be a disciplined investor. The disciplined investor follows a systematic investment process which interestingly utilizes the same financial inputs as the loss averse investor, and the herd follower.

A research study by Kusinskis and Tsai looked at how these three types of investors, each with a portfolio of a hundred grand, would fare when confronted with a real life investment situation. For the full details, read the report in the IPQ, starting on page 24.

The loss averse investor did not rebalance on schedule and sold equity and bond investments to purchase a money market fund near the trough of the market, with the result that the loss averse investor had $110,485 after five years for an annualized return of just 2.01 percent.

The herd follower used all available cash to buy equities as the equities were rising. In other words, this investor bought high. As equities continue to climb, they sold their bonds to buy more equities. They were buying even higher. When the market soured, they followed the herd, sold all their holdings and moved into a money market fund where they joined the loss averse investor, with the result that the herd follower only had $92,622 after five years for an annualized return of -1.73 percent. With no investment plan, no rebalancing, and continuing to buy when the market became increasingly expensive, this investor fell into the classic “buy high and sell low” trap.

The disciplined investor decided on a portfolio allocation before anything else. They created a portfolio that adhered to the plan with 60 percent equity and 40 percent bonds. They systematically rebalanced every Dec. 31 each year. With their financial bed carefully made, they were content to sleep on it. They accepted their losses as an expected part of investing and stayed invested for the entire five years. They didn't deviate from their 60/40 allocation.

The big surprise was the magnitude of the outperformance experienced by the disciplined investor versus the others. The disciplined investor had $139,537 at the end for a 5-year annualized return of 6.89 percent.

The disciplined investor had established the appropriate asset mix right at the start and stayed invested throughout the five years, systematically rebalancing once per year back to the 60/40 split. For example, in one of the years, equities appreciated in value to make up 66% of the portfolio, with the bond side of
the portfolio comprising 34%. At rebalancing time, the investor sold the overweight in equities (selling while equities were higher), and used that capital to purchase more bonds (buying while bonds were comparatively lower). Over time, the disciplined investor systematically was buying low and selling high.

One other interesting point, with our disciplined investor they were able to generate virtually the same
return as the market with about half the volatility (given the 60/40 mix as opposed to the market’s 100%
equity weighting) – the result – better risk-adjusted returns.

Bailing completely out of a collapsed market and staying out is the killer.

Kusinskis and Tsai summarized their work:

"Ultimately, most of us are aware of the benefits of disciplined investing. Numerous historical studies by notable academics have been well-documented, and more times than not, have supported the employment of disciplined investment processes. Unfortunately, human nature can be a powerful inhibiting force to sound logic.

Our advice: Do your homework up front . . . and systematically rebalance at regular intervals. Revisit your objectives on a regular basis, and try not to get caught up with shorter-term performance – use times of weakness and uncertainty to add value to your portfolio."

If this review interested you, check out the complete report. Click here.

Preferred shares for portfolio income and stability

2011-04-01T05:39:00.000-07:00

If you haven't gather this by now, let me make this one feature of my investing philosophy very clear; I make dividend paying stuff the backbone of my portfolio. I am constantly on the prowl for good, solid dividend paying investments. I like them to come highly recommended and to fit into my portfolio like a puzzle piece. In other words, they should fulfill a demand, a financial need, in my portfolio.

Preferred shares add income and stability to a portfolio. I didn't realize this until last year. Even at the time I dedicated a chunk of my portfolio to preferred shares, I didn't quite understand the importance of this move. This was one move my adviser at the bank could applaud without reservation.

I stumbled into the advantages of preferred shares when trolling about looking for conservative, dividend paying investments. I found this on the WebBroker site

Four stars, selling at a discount and a nice dividend; Worth a look.

The Claymore S&P/TSX CDN Preferred Share ETF rates four stars from Morningstar and delivers a very nice dividend. The dividend, paid monthly, isn't high enough to make the earth move, but I could dig it. I checked the Performance and Risk screen.


Low risk: After what we investors have been through, low risk looks good.

Low Risk! So the return is only average, the risk is low. This ETF was speaking my language. It was time to learn more about preferred shares. I found the following on the ScotiaMcLeod site, page 42.

Preferred Shares add income and stability to a portfolio.

"Even if the market is not rising, it is beneficial to have investments in your portfolio which generate a steady income. Using preferred shares with a stable dividend source is one option . . .

There are a variety of different types of preferred shares and it is important to understand the features associated with each particular issue. It is important to discuss your specific needs and goals with your ScotiaMcLeod advisor who can analyze your situation and present you with well reasoned recommendations. It's worth a conversation, as preferred shares have shown resilience in volatile markets."

Like all investments, these are not without some dangers. Preferred shares, like bonds, are sensitive to interest rate changes. And like bonds, if the rates rise preferred shares drop in value. If rates fall, the value of one's preferred shares rises.

The National Bank has an excellent online page discussing preferred shares: What they are, how they work, the risks and the rewards.

With interest rates at historic lows, I didn't think it was a good time to put too much of my portfolio in preferred shares. But my portfolio could take advantage of the limited amount of financial resilience offered. I put just more than two percent of my portfolio in CPD.
_________________________________________________

The Claymore S&P/TSX CDN Preferred Share ETF seeks to provide investment results corresponding generally to the price and yield performance of the S&P/TSX Preferred Share Index. The ETF provides investors with the opportunity to gain exposure to the Canadian preferred shares market, while providing a diversified portfolio and the potential for quarterly distributions.

Investment type: ETF (Exchange-Traded Fund); listed on the Canadian TSX exchange
Ticker symbol: CPD

Fund manager: Claymore Investments, Inc.

Fund information from Claymore Investments, Inc.: Claymore S&P/TSX CDN Preferred Share ETF

Spreading your bets

2011-03-30T05:46:00.000-07:00

Let's be honest, if you're in the market you like a little spice in your investment life. If you don't, maybe you should be buying bonds or GICs.

Once we agree that you crave spice, the big question is: "How much?" Do you like your investments mild, medium, extreme or "erupting volcano" hot?

I used to go for mild but was disappointed by the lackluster returns. I have a friend who likes hot and spicy, volcano hot. When he is on a roll, wow! When he isn't, man his returns are downright depressing.

I've learned to mix my investments to get just the right degree of spice. Check out the three investments that I have posted today: Inter Pipeline, Polaris Minerals and Discovery Air.

When the markets were at their lowest, I bought IPL.UN. Solid company, lots of upside, everybody's favorite. The good monthly dividend and the promise that it would continue well into the future was the icing on the cake. I bought some IPL.UN for both my portfolio and for my wife's.

IPL.UN has done well but that is no surprise and so adds no excitement to my investments. A wise investor, at least a sensible and cautious one, might stop with IPL.UN. I like the fun of a financial fling. I noticed that Discovery Air was selling for mere pennies. This is a good airline that flew into some turbulence. I saw quality selling at a low price and bought.

Polaris Minerals, a relatively new company that came into the world with great promise, has tumbled from a value of about ten dollars to a bit more than a buck. The great promise is still there but followed by a big, question mark. I bought some PLS knowing full well that this might be a mistake. Today the promise is sounding more and more hollow. I know folk who owned PLS who have bailed. Maybe I should too. But I can afford to lose a little and rooting for this little underdog adds the little bit of excitement to my portfolio that I seem to need.

Today, I don't own as much IPL.UN as I once did. I took some of my profits. I don't feel comfortable with too much exposure in one company. I also sold enough DA.A to get back my original investment and I've come very close to parting with my remaining shares. Polaris is down and could go lower, and if it doesn't turn around this summer, I'll probably move on. But taken together, these three have made my investment life both exciting and profitable.

Click on image to enlarge. Numbers on right show gain/loss percentage.

What's the yield? 2.6% or 9.2%? Who's right?

2011-03-29T06:40:00.000-07:00

"DRW holds PFICs (Passive Foreign Investment Companies) in its portfolio. PFICs must mark to market each year (in Q4) and realize a gain or loss in those PFIC shares. PFIC loses are offset against PFIC gains, and then against portfolio income. The PFIC losses for DRW this year wiped out the gains and Q4 dividend income, therefore, no dividend distribution . . . "

Click to enlarge.

I'm not surprised that they were not impressed with the numbers. According to the Globe and Mail, DRW has a yield of 2.6 percent. A painfully low yield for an investment that could easily drop by a third in another serious downturn. A 2.6 percent yield hardly covers inflation.

How did the Globe calculate the annual yield? My guess is that they took the March 2011 dividend, 18.2 cents, and treated it as if it was reflective of every dividend payment to be made in the coming year.

This approach works for lots of companies. The Canadian big banks readily come to mind. For instance, the Royal Bank pays a dividend of 50 cents four times a year.

This approach does not work for DRW. The dividend for this ETF changes with every payment and historically it is much, much higher at the end of the year. The December dividend can be more than the other three dividends added together!

Last year DRW paid:

March: 16.4 cents
June: 51.5 cents
September: 21.4 cents
December: $1.768

And the December dividend was not unexpected. A year earlier the year end dividend was $1.687 and the year before that it was $1.954.

I fully expect to see a yield on my investment, a yield on my trust in DRW, of about 9.2 percent, more or less.

Mutual Funds: My love has cooled, but I'm not movin' on, yet.

2011-03-28T08:54:00.000-07:00

A few years ago mutual funds were all the rage. The market was the place to make money if you knew what you were doing BUT . . . The big but was "but most of us didn't know what we were doing." The answer was to entrust our investment money to some folks who did know what they were doing. In return for earning us big bucks in the market, these experts would take a percentage of the money to cover their costs and pay them a handsome income.

Well, we all soon learned a few things. First, the experts weren't all that good at making pots full of money. In fact, many of us felt that we could have done as well without them and saved ourselves all the associated costs, called MERs, to boot.

The Management Expense Ratio (MER) is composed of the multitude of expenses incurred by a mutual fund during the year. If you could magically do away with MER, you could up your return by that percentage. On paper some of the expenses that contribute to the relatively high MERs reported by many actively managed mutual funds seem to be expected, necessary evils: research, salaries, marketing.

Yet, in truth, many mutual funds that simply follow an index perform as well as the ones that are actively managed. If an index fund boasts a MER of .5 percent opposed to its counterpart in the actively managed sphere, which may have a MER of 2.5 percent, the index fund is 2 percent ahead of its actively managed competitor right from the get-go. This is a big handicap and most actively managed fund never get over it. A high MER is a killer — for you, not for the managers.

As I first openly confessed last year, during my mutual fund stage I got burned time and time again. One of the funds that I bought wayback when was the RBC O'Shaughnessy US Growth fund. It came highly recommended with lots of stars. Sadly most of its stars fell from the investment sky and today only 2 stars remain dimly glowing.

Last year this fund was perfect, perfectly bad.

When I first talked about my disastrous foray into this mutual fund, I was down 57.07%. Today I am down only 43.56%. Last year I wrote that I continued to hold the fund because nothing in life is perfect. Surely this fund cannot keep its perfect losing streak going forever, I wrote. And I was right. It is now on a tear!

This is an interesting turn of events. Do you recall the book How to Retire Rich by James O'Shaughnessy? I do.

According to Common Sense Advice:

"Jim set up a set of mutual funds a few years back, promising to use his strategies in the funds. Of O'Shaughnessy's four original funds, only one beat either the Standard & Poor's 500-stock index or its average comparable fund, as measured by Morningstar. And that one, Cornerstone Growth, prevailed by a sole percentage point."

What went wrong? Read what Efficient Frontier has to say:

"Consider the performance of poor Jim O'Shaughnessey, who sliced and diced historical stock returns in a dizzying variety of ways, coming up with impressive excess returns [on paper]. How well have his funds done as a group in real time? Don't ask."

So, why do I hold on? I don't want to make the same mistake on a big scale that I made on a small scale with my block of silver. I held that 100 ounce brick for years. When the price broke free and started to climb, I sold. In just a few months, the price has almost doubled. Oh, I got out with my shirt but I could have gotten out with a full wardrobe.

Check the screen grab below on RBC O'Shaughnessy US Growth. Look at the comparative performance. For the last six months this fund has been on a roll. It has been sitting right at the very top of it's category for the past six months.

I say, don't sell the leader of the pack. But such a herculean effort will not go on forever. The day will come when this fund will tumble from its perch. When it falls deep into the yellow, the green or even dives to the blue depths, I'll dump all I've got, find a good US ETF paying a good dividend and be gone. (This fund makes up part of my U.S. investment allocation. If I sell, I should replace it with another American investment to keep my allocation goals on track.)

Remember, if you click the ScotiaMcLeod Research image, it will enlarge. If you click it again it will be full size and easy to read. Cheers!

Why I like DRW. A personal fave.

2011-03-25T07:54:00.000-07:00

"DRW holds PFICs (Passive Foreign Investment Companies) in its portfolio. PFICs must mark to market each year (in Q4) and realize a gain or loss in those PFIC shares. PFIC loses are offset against PFIC gains, and then against portfolio income. The PFIC losses for DRW this year wiped out the gains and Q4 dividend income, therefore, no dividend distribution . . . "

DRW offers international diversification and diversification is one of my core goals. The more the merrier.
DRW, like all REITs, offers a hedge against inflation.

So, why DRW? Well, as this chart from Seeking Alpha shows, it is among the leaders in the sector at the moment.

As this chart from my TD Web Broker connection shows, DRW is rated "Average Risk." Being retired, average risk in the most risk that I like to confront.

Also note, the daily sales volume. It is 34.6 K. This, and the total net assets, is enough to keep DRW from appearing on the ETF Deathwatch list.

Lastly, let's look at this chart from my TD Web Broker connection.

Check the Dividend per Share: $2.68 annually for a yield of 9.22%.

Conclusion:

The way I have it figured, and I admit I could be wrong, DRW does not have a fierce downside at the moment, as it has not fully recovered from the beating endured during the recent recession. If it does get smacked down again, it's yield can be be slashed and it may still deliver the 4 percent yield I look for from my investments.

I presently own 500 shares of DRW and expect to see an annual cash yield of more than $1200.

I am presently letting my dividends accumulate in anticipation of a possible correction. If a 10 percent correction hits, DRW will be on my short list of investments.

To round out this post, let me say I also own some VNQ, the Vanguard REIT Index VIPERS ETF. This is rated a 3*** ETF by Morningstar with above average risk. I don't own a lot of VNQ but I do have some. I like the Vanguard name and I wanted the diversity offered by this ETF, almost 100% pure U.S. play.

Could I just put everything in two monthly income funds and spend like a fool?

2011-03-22T11:10:00.000-07:00

"DRW holds PFICs (Passive Foreign Investment Companies) in its portfolio. PFICs must mark to market each year (in Q4) and realize a gain or loss in those PFIC shares. PFIC loses are offset against PFIC gains, and then against portfolio income. The PFIC losses for DRW this year wiped out the gains and Q4 dividend income, therefore, no dividend distribution . . . "

I'm holding my position. I'm not overexposed and feel little concern. We'll wait to see what the yield is delivered at the end of the first quarter of 2012 and we'll hope the value of this ETF doesn't continue to lose ground. This missed dividend payment does add a whole new wrinkle to owning DRW.
________________________________________________

I've now been retired for just more than two years and thus far I've removed 9 percent of my original investment in order to live. This leaves my portfolio up by about 46 percent since retiring. I'm happy but concerned. This market has been just a mad climb into the financial stratosphere since I left my job in January of 2009.

Nothing goes up forever and I'm wondering when the stock market correction will hit. A good friend, and a wise investor, has been selling off his stock holdings over the past month. He wants his cash readily available in the coming months. I'm still holding tight.

I have started converting my non-dividend paying investments into cash in order to take advantage of any big dip. If there is a dip, I can buy low; If there is no dip, but the market just charges on, then I'll withdraw the cash to live and leave my big dividend producers to enjoy some extra growth thanks to the DRIPs (DRPs - Dividend Reinvestment Plans).

If you have followed this blog at all, you will know that I have an ongoing love affair with the TD Monthly Income fund. I've been a little unfaithful as I have also dabbled in the CIBC Monthly Income fund. These two funds anchor my portfolio and supply me with a big chunk of my income in retirement.

My goal is to have about 15 percent of my portfolio in each of these income producing funds. I also have about 6 percent in REITS in the form of XRE and another 6 percent or more hidden in real estate investments tucked into some of the ETFs I own.

Clearly I have a lot of my money riding on the success of the Canadian banks and financial section --- probably more than is theoretically wise. That said, these investments have done quite well and I feel comfortable holding shares in both the Royal Bank and the Scotia Bank. The Scotia folk just upped their dividend. Now, I'm waiting for the stock to climb a little more and maybe split.

I had a lot of Inter Pipeline (IPL) but when it got above $15, I lightened up. I still have about 3 percent of my portfolio in IPL and feel comfortable with that amount. I like the solid monthly income.

Energy (oil and natural gas) both seemed like commodities with lots of growth in the their futures. To that end I hold a bit more than 3 percent of my portfolio in Crescent Point Energy and almost 2 percent in Penn West Petroleum. I bought Progress Energy Resources some years ago and it still accounts for 1.5 percent of my portfolio. Surely natural gas will come back someday. Progress pays a nice dividend while I twiddle my thumbs and wait. I dumped my Trinidad Drilling just recently and I'm out of Suncor Energy as soon as I see a bit of a bump.

Almost all of my U.S. investments are in ETFs. I've got FDL, PEY, PID, SDY, DWX, VNQ,DTN, DRW and DVY. I'm especially fond of DRW but I would never be so bold as to advise anyone to buy it. Do your homework and see what you think. The yield has been so good that soon it won't matter what it does; I'll have reaped a nice reward for my support. I also have three mutual funds that invest in the States. These funds, like a few others in my portfolio, are left over from my mutual fund days. I have about 15 percent of my portfolio in American stuff.

I also own some International investments: PGJ, EWH, EWS, TD International Index Currency Neutral-e and some mutual funds. The only mutual fund that I own and like is Mawer World Investment. It has been a real powerhouse in my portfolio. It will be my last international mutual fund to be sold as I age and consolidate my portfolio.

As you may have guessed, I own the classic ETF for a Canadian ETF based portfolio: XIC. I have about 6 percent in XIC and another approximately 3 percent in XMD. Some of my other Canadian investments are the Brompton VIP Income Fund, Claymore S&P TSX Preferred ETF and Sceptre Equity Growth.

I own one GIC which I will be cashing come fall. I own no bonds except for those that are tucked into my monthly income funds. When interest rates climb and regain their normal place in the financial universe, I'll be buying some bond-based ETFs but for now I'll take my chances with stocks.

If all that seems a bit confusing, you're right. I keep wondering: Why can't I just sell all but my monthly income funds? I'd put half in the TD Monthly Income and the other half in the CIBC Monthly Income. These are both nicely balanced and have good histories for not dropping in lock step with the market.

Check out today's art. It shows what would have happened if you'd have put $400,000 in the TD Monthly Income on the day it was born and removed 5 percent each year on the anniversary of your investment. I figure one could have removed as much as 8.85 percent of the original investment every year and today still had the original investment. Note: this does not take inflation into account. Your original investment would not have the same buying power today by a long shot.

Anyway, take a look. If you click on the image it will be bigger and easier to view.

Cheers!

If you want to play with the calculator that I used, you may find it here. I say may because who knows when the TD Bank will change its Website. TD Asset Management mutual fund calculator.

Open letter to a friend on getting out of the market, dated Feb. 15, 2011

2011-02-15T06:38:00.000-08:00

Dear D****:

I'm very, very torn when it comes to the market. Since we talked in late December I am up about 7.4 percent. Oh, it has not been a direct line up, it has rarely crashed a lot but rather it has gone into a bit of a holding pattern before taking off again. My mix is working well and my income is now well above my goal of four percent of my retirement RSP stash. If we had a pull-back as large as even 20 percent I would be well ahead of my projections made immediately after I retired.

All that said, if the market continues to climb, I am with you in that I am taking, as they say, some of my money off the table.

I'm going to speak to a couple of bankers that I like because at my age and in my position I cannot see why I cannot put all my money into a mix of the TD and CIBC monthly income funds, a few Cdn., U.S. and International ETFs paying good cash dividends, a good chunk of real estate stuff should be included and when interest rates climb above four percent a few bonds should be added. This should give me a cash return between 4.75% and 5.5% --- almost all of which I would spend. With luck, this income would not diminish during a short correction and over the coming years it should increase as companies increase their dividends. This would help to alleviate the problem of inflation eating away at the true value of my income.

Well, I've got my granddaughter on my lap and must stop. (Lucky you!)

Cheers,
Ken

Asset Allocation

2010-11-08T17:18:00.000-08:00

I own too much. I'm doing well but still I feel uncomfortable. I have a portfolio allocation I am trying to follow but as I have confessed in the past, I have been somewhat poor at sticking to my plan. With the market doing so damn well, I believe it is time to show some restraint and put my investment house in order.

There are a lot of folk writing about investing. For today's post I am not going to reinvent the asset allocation wheel. Check out the following link: Canadian Couch Potato Model Portfolios.

Dan Bortolotti has really done his homework. He deserves a fine round of applause. Now, it's time for me, and for you, to do our homework.

Cheers!

An open letter to a retired friend . . .

2010-09-29T13:28:00.000-07:00

My ScotiaBank stock is up 90.76%.

__________________________________________

This info was added Dec. 28, 2011. As of today it appears that DRW will miss paying its fourth quarter dividend. Ouch! The overall dividend yield for the year was more than 10 percent but still I was expecting about $400 come the end of December.

What happened? I found this explanation on the Net:

"DRW holds PFICs (Passive Foreign Investment Companies) in its portfolio. PFICs must mark to market each year (in Q4) and realize a gain or loss in those PFIC shares. PFIC loses are offset against PFIC gains, and then against portfolio income. The PFIC losses for DRW this year wiped out the gains and Q4 dividend income, therefore, no dividend distribution . . . "

I'm holding my position. I'm not overexposed and feel little concern. We'll wait to see what the yield is delivered at the end of the first quarter of 2012 and we'll hope the value of this ETF doesn't continue to lose ground. This missed dividend payment does add a whole new wrinkle to owning DRW.
______________________________________________

Dear Old Friend:

It was nice chatting with you. I always enjoy hearing about your latest investments. My portfolio is doing well but mostly because of good luck and good gut instincts. I think good luck is the big driver.

My Bank of Nova Scotia stock, for instance, is up 90.76%. I bought at the depths of the recent crash. I was lucky.

I worry about investing in any one particular company, even a Canadian bank. The ScotiaBank is getting deeper into Latin America. This could be good but this could also backfire.

BNS pays a dividend of 3.59% but the CIBC Monthly Income Fund pays 5.44%. For this reason, if and when BNS approaches its target value, I will dump most,or even all, to buy CIBC Monthly Income and TD Monthly Income.

The CIBC fund has 5.2% in Royal Bank shares, 4.9% in TD shares and 2.3% in my old favorite Crescent Point. The TD fund has 4.4% in the Bank of Montreal and 4.3% in the ScotiaBank and of course both have significant exposure to other Canadian banks, insurance companies and dividend paying oil plays. Selling my individual shares still keeps me deep into Canadian financials but spreads my investment dollar throughout the sector.

My goal at the moment is to hold onto my stock positions until they approach target values, then sell and reinvest following my Retirement Portfolio Allocation. In retirement, I want 14% of my money in the CIBC Monthly Income, about 11% in the TD Monthly Income. (I break these and count them towards my Cdn. equity and my Cdn. bond investments.) The only other mutual fund that I plan on owning when all is rebalanced will be Mawer World. It has just done so well and it paid 1.88% last year as a dividend. Mawer has earned a spot in my portfolio.

On the phone, we discussed ETFs. Here is the list of ETFs on my love-to-buy list:

DEM - WisdomTree Emerging Markets Equity Income - a 5 star fund with low risk and high yield according to Morningstar, I believe. A 3.41% yield when last I checked.

DNL - WisdomTree World ex U.S. Growth Fund - a 5 star fund with low risk and high yield. 3.7% yield at last checked.

GII - SPDR FTSE/Macquaire Global Infrastructure - a 4 star fund with low risk and average yield. The average yield costs it a star. Yield presently running at 3.9%.

PUI - Powershares Dynamic Utilities Portfolio - a 4 star fund with low risk and higher than average yield. Presently yielding at 4.06%.

REZ - iShares FTSE NAREIT Residential Plus Capped Index - a 5 Star fund with low risk and high yield. Presently returning 3.18%.

I bought DRW recently and watched the yield drop to 3% but the share price has appreciated and so I am cool. I also bought SDY (3.52% yield) about a year ago and I am still smiling. I took a risk buying PEY and watched the dividends wilt. Now, the dividends are slowly, very slowly, climbing back but this ETF pays monthly and and the yield is 4.04% calculated annually on today's unit value. As PEY regains value over the coming years, the dividend will also grow. All that said, I am not pushing others to invest in either DRW or PEY.

I have 6% of my money in XRE. There are better ways to invest in Cdn Reits but I like the simplicity of XRE --- and I'm lazy. I've owned it for years, it is up 5.53% and pays a 6.32% yield. Originally I was looking at investing 20% of my money in various Reits but even though many pension managers do something similar to this I couldn't muster the guts.

My big goal is to reach 65 without moving out of my investments. I'll try and live on just my retirement income plus the dividends from my RSPs. Then, when both Judy and I are 65, I'm going to put anywhere from 33% to 50% of our retirement money into 25 year guaranteed annuities. We should be able to sleep at night and with luck leave a nice chunk to the kids.
____________________________________

Just for your information, here are some other ETFs that I presently own.
CPD (Canada) - 5 star, low risk and high yield
EWH (Hong Kong)
EWS (Singapore)
DTN - U.S. Dividend ETF but ex-financials. I like this ETF portfolio addition because of the ex-fin.
DVY
DWX
FDL (U.S.)
PGJ (China)
PID (International)
VIP (Canada) --- I ended up with this when BTH.UN was sold by Barclay's. I continue to hold a little.
VNQ - I like this, it's from Vanguard, it ups my exposure to Reits without being more of the same Cdn Reits.
XIC (Canada)
XMD (Canada)

Cheers,
Ken

Moving on and the Hunt brothers

2010-09-24T04:44:00.000-07:00

My silver bar with the serial number erased in Photoshop.

Yesterday I finally put the Hunt brothers, Nelson Bunker Hunt and William Herbert Hunt of the great silver debacle, behind me. If you are old enough to remember the year 1973, you will probably remember how the two Hunt brothers, members of one of the richest families in the United States at that time, had entered the silver market in a very big way.

Large quantities of gold could not be held by American citizens back then and so the Hunts fashioned a workaround. They began acquiring silver, another precious metal, as an inflation hedge. As an investment, silver also enjoyed heavy industrial demand. Think silver-based photography.

By 1979 the Hunt brothers, along with some wealthy Arab investors, had formed a silver pool. In short order they amassed more than 200 million ounces of fine silver, equivalent to half the world's deliverable supply. When the Hunts originally begun accumulating silver in '73 the price was in the $2.00 an ounce range. By early '79 the price had risen to about $5 and the historic rapid climb in price was on.

By early 1980 the price was in the $50s, peaking at about $54 U.S. per ounce.It began to look as if the Hunts and their consortium would corner the silver market. Outsiders joined in the feeding frenzy driving the price higher.

But no one considered the reactions of the regulators to all this chaos in the silver market. A combination of changed trading rules on the New York Metals Market (COMEX) and the intervention of the Federal Reserve put the brakes on the Hunt's out of control silver binge. The price began to drop, culminating in a 50% one-day decline on March 27, 1980 as the price crashed from $21.62 to $10.80.The Hunt brothers declared bankruptcy and countless speculators went bust with them.

And then there's me. The drop in price from the lofty $50s to just over ten bucks was not quick and clean. There were ups and downs. I bought on the last down. There was no bounce offering a chance to sell my brick of silver.

In fact, over the years the price continued to gently slide and I lost money. I owned a valuable door stop.

Yesterday the price rose to more than $21 and ounce and I stopped by the ScotiaBank with my silver. I learned that yes they still bought 100 ounce silver bricks. This is only fair as they originally sold me my silver bar decades ago. I'll pay some fees, $30 for armoured car transport, and some other small charges. But, by sometime next week I will be more than two grand richer.

Now, what do I use for a doorstop?

Bought EWH_Love ETFs but not mutual funds

2010-09-17T14:02:00.000-07:00

A few years ago I bought about $8000 of the HSBC Chinese Equity Fund (HKB517). Today I sold the stuff. I almost got back my $8000.

I am now retired and if it isn't pumping out dividends and it isn't appreciating, it should be history. I dumped the HSBC Chinese Equity and bought some iShares MSCI Hong Kong Index FD ETF (EWH). I got 400 EWH shares at about $17.31 counting the brokerage fees. EWH is rated a low risk ETF with an above average return.

As this didn't use all the $8000, I decided to put $500 into a rule breaking investment --- Mawer World Investment Fund (MAW102). I say rule breaker because this fund pays only an erratic dividend and then only once a year in December. Last year it paid 1.88%. And this is a mutual fund and not an index ETF.

So why did I break my own rules, why did I modify my portfolio? Well, I own some Mawer World already and like it. It has done well by me. Today it is rated a 5 star fund by Morningstar and despite changes in management, it is still on the their Picks list.

The deciding factor was my portfolio allocation. By selling the Chinese equity I was underweight in my international exposure. The purchase of the EWH didn't put all back in balance and so I bought the Mawer World as I felt comfortable increasing my holdings.

When the dust settles there may be some change left on the table. I will stick that into the CIBC Monthly Income Fund as I still have some portfolio allocation room in the CIB512 space.
____________________________________________

Now, for the second half of this post. You know, the part about not loving mutual funds.

A few years ago I went through a mutual fund stage. I got burned time and time again. I am now in the process of extricating myself from those investments. One of the funds that I bought was the RBC O'Shaughnessy US Growth fund. It came highly recommended with lots of stars. Sadly most of its stars fell from the investment sky and today only 2 stars remain dimly glowing. Morningstar has removed this fund from their list of Fund Analyst Picks.

As of today I am down 57.07% with this investment. Investment?

This is an interesting turn of events. Do you recall the book How to Retire Rich by James O'Shaughnessy? I do.

According to Common Sense Advice:

"Jim set up a set of mutual funds a few years back, promising to use his strategies in the funds. Of O'Shaughnessy's four original funds, only one beat either the Standard & Poor's 500-stock index or its average comparable fund, as measured by Morningstar. And that one, Cornerstone Growth, prevailed by a sole percentage point."

For me, this mutual fund has been a dog and a big drag on my earnings. Despite O'Shaughnessy's popular book, his appearances on television, the connection with the trusted Royal Bank, James got it wrong. It appears, one important step in retiring rich was to not invest in one of the O'Shaughnessy funds.

The above is from a Morningstar chart showing the preformance history of the RBC O'Shaughnessy US Growth Fund. Not only is it consistently in the 4 quartile, it is at the bottom. The black square at the bottom of each column represents the fund.

Why do I continue to hold it? Nothing in life is perfect. Surely this fund cannot keep its perfect losing streak going forever. Can it?

For another look at claims of retiring rich and being sucked almost dry check my post on my Freedom 55 investment.

Addendum

On Sunday, Sept. 26th, 2010, while reading the Globe online I noticed my RBC O'Shaughnessy U.S. Growth fund was among the one day gainers with a bump of 3.86 percent. Like I said, it can't be on a perfect losing streak forever. My exit window may be coming.

Just bought some CPD and DRW

2010-08-26T13:05:00.000-07:00

This post is for entertainment purposes only. No part of this post should be construed to constitute investment advice. The author is not an investment professional and assumes no responsibility for any investment activities you undertake. Prior to undertaking any financial decisions, you should contact an investment professional.
_______________________________________________

This info was added Dec. 28, 2011. As of today it appears that DRW will miss paying its fourth quarter dividend. Ouch! The overall dividend yield for the year was more than 10 percent but still I was expecting about $400 come the end of December.

What happened? I found this explanation on the Net:

"DRW holds PFICs (Passive Foreign Investment Companies) in its portfolio. PFICs must mark to market each year (in Q4) and realize a gain or loss in those PFIC shares. PFIC loses are offset against PFIC gains, and then against portfolio income. The PFIC losses for DRW this year wiped out the gains and Q4 dividend income, therefore, no dividend distribution . . . "

I'd say more but I am only a successful investor and my success could be as much luck as skill. I don't want to lead anyone astray. Yet, my portfolio is up about 27.5 percent since retiring around January 9, 2009. And that is after removing tens of thousands of dollars to help finance my lifestyle. My wife and I spent almost six weeks on the road travelling about North America in my vintage automobile, a '60s Morgan Plus 4.

Now, google CPD and DRW and, if you like what you find, maybe you've found a couple of investments for the long haul.

Cheers!

Chapter Two_Getting our ducks in a row

2010-01-12T18:51:00.000-08:00

In the first chapter you learned about spreadsheets. I hope you downloaded the spreadsheet and played with it. It will accurately track your day to day expenses. It will also track your income. Using these numbers, it will tell you how far into the black, or in the red, you are running your financial life.

You probably even made some surprising discoveries. I know that when I looked at my budget I immediately saw a couple of places where I could painlessly cut expenses if necessary. Having such a cushion, exit strategy you might say, makes one's financial life a little less scary.

The next step before we actually put together a portfolio, especially one for retirement, is to talk with a financial adviser. I am not a financial adviser. Reading this does not count.

The first experts with whom you should touch base are the ones who have written books on investing. I really liked Protect Your Nest Egg by Eric Kirzner and Richard Croft and The Portfolio Doctor by David Cruise and Alison Griffiths. I bought these.

Of course, the library has lots of good books on managing your investments. If you find one you like, buy it and add it to your personal library. Spend some time with these texts. You want to be somewhat knowledgeable for the next step - sitting down with a living, breathing financial adviser.

Many branches of Canadian banks have people on staff to assist investors and they also have associated businesses where they can send you for advice. I talked with folk at the ScotiaBank and at Scotia McLeod.

I then chatted with a fellow I had known for years at the TD Canada Trust branch where I banked. After quizzing me, he said, "Open a self-directed plan. You can manage your own portfolio. If you run into problems, I am always here."

I took my financial adviser's advice. I opened a self-directed RSP.

What do you think of investing in . . . ? Fill in the blank.

2010-01-07T19:42:00.000-08:00

I got an interesting call today. An American friend called to tell me that he had just bought some shares of Citigroup. It was a steal at under four bucks. He wanted to know if I thought he had done the right thing.

Now, this person has shown some smarts when it comes to stock picking and going against the prevailing wisdom. He bought some Ford stock when it hit a dollar. Mind you, this only averaged the book value of his Ford holdings down. He had bought lots earlier at a far higher cost.

So, what did I think. Nothing good. I confess that I have bought some stock. O.K., I confess that I have bought lots of stock. But looking back at how my stock picks have performed, I can't say that I have been brilliant - lucky maybe, but certainly not brilliant.

Stocks seem to be like potato chips: I bet you can't eat but one. And so if Citigroup and Ford perform well, chances are that something else in the stock portfolio won't do as well. For me, I've found that when all is said and done my index-based ETFs or mutual funds outperform my mix of stock picks.

Being that this fellow is in his early 50s and American, I would have gone online and checked the Vanguard - Retirement Insights page. There is lots to read and it is very clearly organized.

Then I would have checked out the Vanguard - Core funds. Why? With interest rates so low at the moment, I am not keen on having too much money in funds heavily into bonds. I'd take my chances with a mix of core funds with the intention of shifting more into bonds in a few years when interest rates have recovered. That is about the extent of my market timing action.
___________________________________________

I looked up Citigroup (C-N) using GlobeInvestor. Its rating on a five star scale is one. One star!

Yet, despite its having but one lonely star, it does get a buy suggestion. (My rule is to wait for the strong buy suggestion. Too many stocks, in my estimation, get the buy flag waving.)

Cramer loves Citigroup and sees it as a great speculative play. But there is that word - speculative. And the last time I checked, Cramer does not do all that well when all his picks are considered. Indexes often beat Cramer. I know how he feels.

I wish my friend luck. He's probably made a good move, this time. Now, can he stick with but one.

Lost decade? If I could only be so lucky in the next ten years.

2010-01-02T06:33:00.000-08:00

The Globe called it "The Lost Decade for Investors." Hmmm.

At the beginning of the decade, if you had taken the advice of a lot of financial reporters and developed a financial plan based on a diversified portfolio with a carefully considered allocation of your investments, you might have developed a plan something like this. (This is based on my own portfolio breakdown but is not exactly how I am investing during retirement.)

7% cash (Shove this in mostly in GICs with a little in a money market fund.)
29% TD Canadian Index
13.125% TD U.S. Index (Currency Neutral)
13.125% TD International Index (Currency Neutral)
22% TD Canadian Bond Fund (This is one of the rare funds that I would buy that is not an index.)
15.75% TD Monthly Income

If you had taken $100,000 at the start of the decade and invested it as shown, and not put in another cent, your RSP would be worth more than $147,139.38 today. The reason it would be more is that I do not have a calculator for GIC investment growth handy and I have already made my point with the equity plus bond results.

So, if you are an investor who had a traditional plan and embraced rich diversification within in a carefully considered allocation model, you probably did alright.

...and yes I know that the TDMI is heavy with banks and also adds to my bond holdings. You can check the TDMI porfolio mix and blend it with your personal goals very easily. I did.

Always look below the hood when buying mutual funds or ETFs.

The Mean Decade: 2008 - When the financial world crumbled.

2010-01-01T22:00:00.000-08:00

Sun Media reporter Thane Burnett has written a series on the past decade in which he found very little good to report. When it came to 2008, the article carried the headline, "The Mean Decade: 2008 - When the financial world crumbled."

Many of us, who have been saving for retirement and rode out the truly frightening 2008 correction of historic proportions, are kicking up our heels with glee. In the end, it was a good decade.

2008 was bad when you think about investments, but it was not anywhere near as bad as the media would have one believe. Everyone did not buy at the peak and dump their stock when all bottomed out. The story is far more complicated than that. Let  me give you an example.

If you had put $10,000 in a simple fund, say the TD Monthly Income on Jan. 1, 2000, you would have had $18,024.49 at the end of 2008. When growth like that is being achieved, saying the financial world crumbled as Burnett claimed, is the all-too-common shallow media response to a complex story.

If you had left the money in the TD MIF until the decade ended, you would have had $23,552.99 for an increase of 135.5% during the "mean decade." The financial story is not over but as the decade ended, the story was hitting some very positive notes.

I, by the way, owned a lot of TD MIF until early this year when I dumped about 75 percent of my holdings for CIBC Monthly Income. The CIBC offering has not performed as well as the TD one but it did not drag my portfolio down either, just put a gentle brake on its growth. A little less volatility offered the benefit of a better night's sleep. I'm not upset about my decision. This story is not over. I am still buying sleep with my CIBC purchase.

Like many investors, I found 2009 an amazing year, giving portfolio growth in the 30 percent range. If the 2008 crash chopped  a fast 20% to 25% off your balanced, diversified portfolio, 2009 may not have pulled you free of the financial hole dug a year earlier, but you are sitting in a very comfortable position.

A $100 thousand dollar RRSP portfolio could easily have been cut to a $75 thousand dollar portfolio in 2008. But that $75 thousand could easily have regain most of its losses in 2009. (100 X .75 X 1.3 = 97.5)

If you had had the nerve to buy into the market in the spring, there are lots of ETFs and inexpensive mutual funds that would have paid handsomely.

It is a rich, complex world. If someone tries lumping ten years together, a whole decade, one has to ask a few questions. The first question is, "Why is the Sun Media reporter not asking more questions?"

And they (Sun Media and other media folk) wonder why newspaper sales are slumping.

Chapter One: Be Prepared!

2009-10-12T08:29:00.000-07:00

In December of 2008, only nine days before Christmas, Sun Media chopped 600 jobs. A day or two later Pierre Karl Peladeau (PKP) sent out his annual Christmas message. His Merry Christmas wish was, shall we say, in the PKP tradition of his dysfunctional season's greetings.

Read what Canadian Entrepreneur said about his 2007 message, the one that many computers throughout the media chain were mercifully unable to play. (Quebecor originally posted his 2007 message but has since taken it down.)

Despite the layoff, I had a fine Christmas. You see, Sun Media, The London Free Press human resources department and the LFP union all worked together to assemble a fine buyout package. At age 61 and some months, I was retired.

Claiming my company pension and CPP payments three and a half years shy of my 65th birthday cut my Free Press pension by more than 17 percent and my CPP by about 21 percent. These cuts hurt but I was prepared. Three years earlier I had taken control of my pension plan, set goals, met them and felt confident that I could survive without The London Free Press.

I will be the first to admit that the cash buyout was generous and greatly appreciated. And having a retirement plan in place meant that I did not have to sit down and calculate whether or not my wife and I could survive on the buyout package. My computer already had the answer — and it was yes!

Preparing for Retirement
Everyone should have a simple household budget. Like most of what I do, my method of tracking my money follows the KISS rule — Keep It Simple Stupid. Let's be honest here, if it is not kept simple, it simply won't be used. Right?

1. Prepare a household budge using a spreadsheet. At the end of this chapter I have supplied a spreadsheet to get you started.

2. At the the beginning of the year enter your estimates of your monthly expenses.

3. As the year unfolds, near the beginning of each new month, enter the true expense numbers from the previous month, over-writing your estimates.

The problem almost everyone runs into is being unable to retain every receipt for correct entry. Most find keeping every grocery store receipt for a month impossible; I certainly do.

I get around the receipt problem by charging everything that I possibly can — everything. My wife and I spend less than $100 in cash a month. When my Master Card monthly bill arrives, I enter the amounts into my spreadsheet.

I use a Canadian Tire Master Card, and because I charge so much, I get a rebate on all my credit card purchases of two percent in Canadian Tire money. At the time of writing, GM still offers a Visa card that allows you to accumulate funds toward the purchase of your next GM car. I'm sure if you look around you can find a card which will make sense for you. (I saved thousands on the purchase of my Pontiac and other GM cars that I have driven over the years.)

The caveat is obvious. Do not charge more than you can comfortably pay. Once a month you wipe the credit card slate clean. Never, and I mean never, pay interest to a credit card company.

For instance, when my wife and I installed wood flooring in our home, we charged it. We earned about $240 in Canadian Tire credits and by keeping our money in the bank an extra month, we earned about $26 from a high-interest savings account.

You can either make your own spreadsheet using Google Docs or Excel or you can downloads one from the Internet for free. Here is a popular one from Google Docs.

Google Docs - Family Budget Spreadsheet

Some tips on using a spreadsheet

Spreadsheets are incredibly popular and for good reason — they are great number crunchers. That said, there are some tricks to getting the most from your spreadsheet.

If you have a repeating expense, say a car payment, enter the payment in the first cell, the January cell. Then click on the cell. You'll get a heavy blue outline with a square, or handle, in the bottom right corner. Move the cursor to the handle and drag the heavy rectangle all the way from January to December. This will copy the January information into the cells for all twelve months.
To change the width of cells, touch the cursor to the line separating cells in the alphabetically labelled row at the top of the page. The cursor changes to a double ended horizontal arrow. Depress the mouse button and slide the line to a new position.
The above trick works if you must change the height of cells, just use the column of numerically labelled cells on the left side of the page.
If there are rows you will not use, say you do not have children, remove these rows by clicking on the row and going to Edit -> Delete Row. Make sure the row number shown is correct and delete the row.
Do not delete any columns.
You can modify the words in a cell by double-clicking on the cell.
I selected all the calculated cells, went to Format -> Change Colour With Rules and using the pulldown menu set the cells to display their results in red if the results were less than zero. Being retired, I do have some red cells.
The really neat thing about the Vertex42.com Family Budget Planner spreadsheet available from Google Docs is that you can export it to your hard drive as an Excel spreadsheet. This is important for later chapters.

I use a Dell computer running Windows. My computer came with Excel and I believe most Windows computers have Excel. If you are running a Mac, you may have to jerry-rig something on your own. It is not that difficult, especially on a Mac.

Bernie lost but half his clients won!

2009-09-24T04:16:00.000-07:00

Read my updated take on Bernie Madoff while I work on expanding Rockin' On: Money.

Cheers,
Rockinon

Always invest such that you sleep at night...

2009-09-08T05:24:00.000-07:00

Read the following in The New York Times today:

"Mr. Buffett refused to be drawn out on where stocks are headed, but he warned about the dangers of investing with borrowed money, or leverage, which proved disastrous when the crisis hit.

As for regrets, he has a few. His timing was bad, he concedes. He should have sold stocks sooner, before the markets tumbled. Then he served up a Buffettism that any investor might heed:

Asked if anything was keeping him awake at night, he said there was not. “If it’s going to keep me awake at night,” Mr. Buffett said, “I am not going to go there.” "

I am up about 30% for the year. Some of my investments have almost doubled in value, and others have lagged. I could have done better, if I had been bolder. But, I agree with Buffett - invest with an eye to sleeping at night.

Cheers,
Rockinon

GM slight of hand...0% becomes 7.2%

2009-08-07T13:28:00.000-07:00

Recently I got a letter from GM/Saturn offering me a deal on a new Saturn Astra. I was sent the letter because I was a long-time GM owner. I was later told that this was GM's way of saying thank you. It turns out that a thank you from GM is as bankrupt as the company itself.

I visited the Saturn showroom and got a quote for a new Astra XR with 0% financing for six years. With all calculaltions completed, the car would cost $26,456.35. A lot of money for a soon to be orphaned car. If I paid cash, I could have the car for $4000 less but then I would be paying interest to the bank. The salesperson assured me that borrowing from the bank in order to pay cash for the car or simply paying more up front and taking the no interest loan from GM would amount to about the same monthly payment.

Today, I saw an Saturn Astra ad in my paper. $13,990 gets you a 2009 XE with air, it said in large red type. Of course to get that price you must be a "current Saturn" owner. The price is actually $14,990 for most folk as most folk are not current Saturn owners. Oh wait, the published price also includes a credit of $4000 for paying cash. So, if like most people, you don't fork over cash for your new car, the price is more like $18,990.

You must add $1400 to cover freight, and there are still the taxes and the registration fee with which to contend. By the time you walk away with your new $13,990 car, you will be out about $21,500. With 0% financing, and $500 down, you will pay about $291.67 per month for your new car.

This works out to be about a 7.2% effective interest rate. Remember, this vehicle sells to others for about $17,500 cash, but you paid $21,500 to be rewarded with a no interest loan. It is no surprise that in the fine print GM admits the effective interest rate is higher than 0%. All pretty cheesy, eh?

I googled "0% scam" and found "The Zero-Percent Financing Scam" by Joseph Ganem. He has a calculator that compares the claimed 0% rate with the rate offered by banks for car purchases. I checked it out and it appears to work. Take a look and have fun. It is an eye-opener. If you're looking to buy a car, this calculator is quite handy.

Why the MSM does not report this scam.

When I worked for a local daily, I tried to interest the paper in doing a 0% interest rate story. The editor I approached readily admitted that they were not going to attack the car companies; they were simply too important to the paper with their many full page ads.

We essentially published press releases from the car companies when it came to their pricing claims. We were, and are, not alone. Read the following from a recent CNN Money story.

"For customers financing $30,000 on a new vehicle purchase, 0% financing would be worth almost $8,000 compared to current rates, said Jesse Toprak, an analyst with the automotive Web site Edmunds.com. . .

. . . Customers trading in a GM car or truck they now own who forgo the financing offer may be eligible for cash incentives that could total as much $7,000. . . "

Did you catch that? 0% financing supposedly saves you almost $8000 in interest charges but if you had paid cash you could have bought the vehicle for almost $7000 less. Think effective interest rate. In this case a vehicle that sells to others for about $23,000 was sold to you for $30,000. the 0% financing is about a 9.18% effective rate!

Not only do things like this make me suspicious of the car companies but the manner in which they are covered by the press makes me question today's media.

I went to a retirement breakfast for print media folk Wednesday. One of the fellows recalled an incident from his days at the paper. A woman, who felt she had been shafted by a local Chrysler dealer, had taken to the street to picket the dealership. The paper took pictures and interviewed the woman. Soon the dealer was at the paper, first talking with the editorial department and then with advertising. Four decades ago when this happened, the editorial department ignored the pleading of the advertiser and the ad department. The paper ran both the story and the picture. Back then it was an easy decision; it was news.

Advice for the Blogger Met at the Blogger Dinner

2009-08-06T06:47:00.000-07:00

Last night there was a blogger dinner in London, Ontario. Once a month local bloggers get together for a face-to-face get together. They swap stories, laugh, share knowledge on how to best set up their personal sites . . .

One fellow there was talking about investing. He was just starting out and I foolishly told him that I was working on a site that addressed many of his concerns. My site is still in the formative stages, much of it is still be formed in my mind and has not made the transition into code.

If you are that fellow, here is a list of links that may do you some good. Cheers, Rockinon.

This post points out the dangers of not doing one's homework but simply entrusting your financial future to the experts.

One needs trusted benchmarks in order to judge how you are doing. If you made 10% on your investments while a no-brainer benchmark returned 20%, you're doing poorly. Read my post on benchmarks and follow the links. This is important.

If you are serious about investing, then read this and follow the link to Peter Ponzo site. This former university professor and math department head is a clear thinker and a clear writer. If you enjoy math, you'll love his site. If you hate math, you may still enjoy his site. Like I said, he is a good writer.

Lastly, if you are still enthralled with self-proclaimed experts, read this take on Jim Cramer.

Dear blogger, maybe we'll meet again at the September blogger dinner and maybe I'll be able to tell you my Money site is up and running and full of helpful advice.

Cheers,
Rockinon

Freedom Fund down 71% Puts Mattress Up 345%

2009-08-03T04:43:00.000-07:00

Coming up is an actual photo, with minimal enhancement, from my June 30, 2009 London Life retirement savings plan statement. It details the results achieved by my Freedom Fund.

I won’t say much about this is a plan, a plan marketed to me under the name Freedom 55, as my wife has me on a short leash; she worries about being sued. I am now 62, retired, and I do have financial freedom but no thanks to the financial wizards that handled my account at London Life.

The media has made quite the story of Mr. Madoff and his scam. But I have managed to lose about 71% of this investment without dealing with Madoff or his ilk. I did it right here in London, Ontario — no trip to the Big Apple necessary. Luckily, I didn’t have much invested with London Life but still I’d love to know how much money went to management fees to reward this sterling work.

I have a rule: putting money under a mattress should never result in more money in hand. I would have about 345% more today if I had shoved my loot under my mattress rather than putting it in a Freedom Fund.

As Rod Serling warned, “You are about to enter another dimension . . . Next stop, the Twilight Zone!”

This is the actual “Total change in value of your investments” graph from my statement. There have been no withdrawals. This fund lost it, all on its own, without any help. Nice work.

Some background: I gave this money to the Freedom 55 rep with instructions to put it where he thought it would perform best. Hey, he was the expert. I believe he shoved it in their best performing fund from the past year. If he did, it was a bad move. I will blog about why later, for now just believe me when I say studies have shown that if you want to have a poorly performing portfolio put your money in last year's top winner.

Since this money was invested in March of 2000, I'll bet this retirement money went into a dot-com bubble fund. I'm sorry that I don't still have my records but I don't. Next rule, bubbles are not for retirement funds.

I called and had what was left of my investment moved into another fund but it did not do all that well either. My own money, the money I have taken control of, is nicely in the black. My personal portfolio is weathering the recession with admirable aplomb.

Oh well, come age 69 — oh, make that 71, the rules were recently changed — London Life is obligated to return at least 75% of my original investment.

Wait! I have had a eureka moment. It is my adviser at London Life who earns freedom at age 55, not me. I have to go back and read the fine print. I may be on to something.

For another view on Freedom 55 check out this blog by Darren Barefoot.

Work Long, Die Early, The Road to Successful Retirement

2009-07-23T05:44:00.001-07:00

I read a funny piece by Gordon Powers on MSN Finance. It was entitled: How not to ruin your retirement. As I'm retired, forced out of the workforce last December by a layoff, I was interested.

I learned: "the biggest payoff comes from ensuring that you don't retire during a sharp downturn." That's right, during a downturn don't get a layoff notice; It's bad planning. Damn. I made my first mistake right there. Only accept a layoff notice during boom times. It's a good rule. No argument there.

Cutting back on your payout period will also up your chances of not running out of cash during retirement. Powers actually looked at doing this by working longer but since we are in a downturn that's difficult. Another approach to this, and easier to boot, is just don't live so long. Hey, 84 or 85 what's the diff. Try this with any financial calculator; It works! Need more security, cut your lifespan again. If I'm gone by 79, I'm in good shape financially. It's a plan!

Lastly, to kick your chances of success up another notch, Power suggests putting more of your money in stocks. The biggie here is do not put the money in bad stocks, don't be silly. Only invest in good stocks that are going up. Use your head. Invest wisely. If there was ever a time that you considered Northern Telecom, GM, or the big American banks as safe investments, maybe this ploy isn't for you. Hmmm...well, maybe stock market ETFs or a cheap index fund would be O.K. Rumour has it that even losers win with those. (I've done well.)

There may have been more insightful tips but I didn't have time to finish the piece, I was busy chopping more years off my expected time of departure. I can relax. I now have a goal that is more retirement appropriate. My retirement funds are safe, unless I am unlucky enough to live. Damn. Always a fly in the ointment.

*Technorati

2009-07-21T13:04:00.000-07:00

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It's all a gamble!

2009-07-18T04:13:00.000-07:00

The other day I blogged on investing for retirement and a reader questioned my ideas. The questions were very good and very pointed. My questioner made it clear I had not taken a very good in-depth look at where I was considering putting some of my precious retirement funds.

I don't want to appear too flippant but somehow, at some point, all is a gamble. No one steps up to this table and walks away a winner.

On the way to our eventual loss, and we all ultimately lose this game called life, we like to feel in control. Our investment strategy is no different; we want to believe if only we take control, do it well, take care to make no mistakes, we will succeed.

I hate to tell you, but this not necessarily true. In the end, it is out of our hands.

I like to dream that I am a movie writer working on a successful script. (I make a mint, it may star Tom Cruise.) In my movie, an inventor perfects a time machine and a criminal acquaintance, Tom Cruise who is facing certain imprisonment, kills him in order to travel back in time. He believes that he will avoid imprisonment plus benefit from knowing the outcome of everything.

He uses his new knowledge to quickly accumulate wealth, all is going as planned. He puts all his money in IBM. He knows it will beat Burroughs, drive them into the ground. He discovers that life, given a chance to be replayed is not at all like a stage performance with lines etched in stone. It is life, living, breathing life. This time the execs at IBM make some small mistakes and the ones at Burroughs don't. Burroughs buries IBM, leaving them making electric clocks and money-losing Selectric typewriters.

The man loses everything. He realizes life is not unfolding the second time as it did the first. Each day life moves farther and farther away from life's original path; the one with which he was familiar. Events are not repeated. He turns to crime as he is a criminal; he gets caught and is sent to prison.

Somethings don't change.

My point. Move carefully in the financial world, follow the rules. If you don't know the rules, visit the library and borrow a few books. A visit to Chapters might be in order as the library does not carry all the good books. Spend a little money on some books — think of it an investment.

Then, set your goals, buy a mix of stocks, bonds and GICs, spread the risks, and sit back and relax. Really, it is out of your hands.

Cheers,
Rockinon.

p.s. In a future post I will look at Monte Carlo calculations as they apply to financial planning. I have an Excel spreadsheet tracking my portfolio. The true average annual return of my investments is plugged into a Monte Carlo calculator, as is the true value of my investments. The calculator factors in my wife and my old age pensions which will kick in in a few years. It looks at the dividends and the distributions that I am actually receiving as of today, and lastly, it factors in my true living expenses which it takes from my home budget page.

At the moment, I won't become a burden on the government until I hit 91 according to Mr. Monte Carlo. Cheers!

An Almost Classic ETF Index Portfolio

2009-03-23T13:12:00.001-07:00

O.K. So, here is the first of my own fun benchmarks. I call them fun because they are all based on stuff that I have read on the Web or in books. They were all presented as ways to practise buy and hold investing.

None of these portfolios exactly mirror the original portfolios. They reflect my thinking after being strongly influenced by my reading.

I call my first benchmark - My Almost Classic ETF Index Portfolio
It is composed of:
20% Money Market Fund - I use the Saxon and the Royal Bank money market funds.
30% XSB - this takes care of the bond exposure
35% XIC - this takes care of the Canadian equity market
15% XSP - this gives a some exposure to a foreign market

A pure classic portfolio simply puts 1/3 in each of the following: XIC, XSP, XIN. I had a benchmark based on this for some years but was not impressed with its performance. Very volatile and not a lot of income from dividends.

As a retired person, I need the ability to get at some cash quickly. This explains the generous money market holdings in my version of the classic.

The bond holdings are there because of my age. They lessen the portfolio's volatility. In the past year, bond ETFs in a portfolio have delivered as promised and mellowed out the financial ride. I worry that going forward, as interest rates rise, bond ETFs will become a drag.

The last two ETFs are the equity portion of my benchmark. Being retired, I wanted to minimize currency risk and so weighted this fun portfolio towards Canadian equities. Lastly, I plunked all my imaginary money in the States for my foreign exposure. (In reality, I have portfolio exposure in Europe, Asia, and South America, along with the States. This diversification in my own portfolio has not delivered the protection from volatility as hoped.)

Since starting this blog, this Almost Classic ETF Portfolio is up almost 6% as of Sunday! But, this means nothing over such a short period.

Cheers.

Benchmarks or A Man's Gotta Know His Limitations

2009-03-21T07:39:00.002-07:00

Today is an important day for me - I'm going to tackle benchmarks. I will not get done, my wife has yardwork waiting for me, but I'll get started and finish as the week unfolds. But, I guarantee I will blog enough today to keep you busy with your own financial homework.

First, I am not going to reinvent the 'benchmark wheel' here. For an excellent article of the value of benchmarks, please go to:
http://www.croftgroup.com/articles/benchmark.htm

These two chaps, Richard Croft and Eric Kirzner, designed three indices, which can be found on the Financial Times site at: http://www.financialpost.com/markets/market-data/indices-fpx-daily.html

There is an index for the growth investor (down 5.22%), another for balanced portfolios (down 3.7%) and a final one centred on income (down 1.09%) for folk like me. The nice thing about these three indices is they can be easily assembled in reality. Their make-up is transparent.

I may say income folk like me but the truth is I am a mix of all three approaches, like many investors. I figure if I am doing better than the growth index, I'm doing O.K. And today, Saturday, March 21, I am down 4.74% for the year. Ouch! But the FPX Growth Index is down 5.22% year to date (YTD). Easing the financial pain is the fact that I on my way, thanks to dividends and distributions, to being able to withdraw 4% or more from my RRSP without encroaching on my mutual funds or securities themselves. (But with the economy still in the grips of a bear, it is still anyone's guess how dividend and distribution cuts will affect my final cash holdings for the year ending in December.)

For another perspective on the success or failure of my portfolio I have put together a number of benchmarks based on the financial stuff that I have read. There's my Hi-Yield Lazy Dude, my Canuck Retirement Strategy, my Almost an ETF Classic, and my TD e-Funds Approach - more on these later.

Lastly, I enjoy following some of the stuff posted by Frank Russell. Frank posts Sovereign Sample Portfolios on the Web. YTD the posted conservative portfolio has dropped -5.54%, the moderate portfolio has dropped -8.21%, and the aggressive one has racked up a double digit loss of -10.54%. Do you use Frank? How do your results compare to these?

If you check out the Frank Russell LifePoints portfolios you will find that the balanced growth portfolio has lost -4.71%. Does that number look familiar? My portfolio is keeping up with Russell's herd of financial experts. This is comforting.

Frank's Sovereign site is:
http://www.russell.com/ca/Investor_Services/Sovereign_investment_Program/sample_portfolios.asp
Franks' LifePoints site (Frank capitalizes the P in the middle - too cutsey in my book.) is:
http://www.russell.com/ca/Investor_Services/LifePoints/default.asp

Return Monday and I'll tell you about my fun indices, their make-up and what they tell me about investing.

Cheers,
Have a nice weekend.

p.s. If you are interested in the books written by Croft and Kirzner, I read Protect Your Nest Egg and recommend it, click on this link:
http://www.croftgroup.com/books/index.htm

A Financial Myth Buster . . . and much more

2009-03-18T20:26:00.002-07:00

I started handling my own investments after a financial adviser asked me how comfortable I would be losing 25% of my money (my wife recalls he said 30%). No matter, I decided I didn't have to pay someone to lose my money. I could do it for free . . . in my spare time . . . make a game of it. In the present economy, I have succeeded at all three.

I now find myself put out to pasture early, retired, in the position of having to take money out of my RSP in the very time I would rather be putting money in. Oh, how I miss those bi-weekly paycheques. Buyouts aren't all they are cracked up to be.

On the positive side, I am not alone. There are lots of do-it-yourself (DIY) investors, many are retirees and many share their wisdom on the Internet.

One of my favorite sites was run by the retired former head of the mathematics department at the University of Waterloo - Peter Ponzo. Ponzo, now in his 70s, is trying to wean himself away from his financial blogging and get back to his writing and painting. But his site is simply too good to let fail - unlike A.I.G. - it is moving to: http://financialwebring.org/gummystuff/gummy_stuff.htm.

Ponzo asks the same questions that many of us ask but goes an important step farther, he tries to supply an answer. He focuses the power of mathematics on financial questions and shows that many of our cherished beliefs may be more myth than fact. He expands our understanding of things financial while lowering our expectations of finding easy answers.

A Quote Without Comment

2009-03-18T19:41:00.002-07:00

"Let’s not forget, A.I.G. was basically running an unregulated hedge fund inside a AAA-rated insurance company. And — like Madoff, who was selling phantom stocks — A.I.G. was selling, in effect, phantom insurance against the default of bundled subprime mortgages and other debt — insurance that A.I.G. had nowhere near enough capital to back up when bonds went bust. It was a hedge fund with no hedges. That’s why taxpayers have had to pay the insurance for A.I.G. — so its bank and government customers won’t tank and cause even more harm."

Thomas L. Friedman - New York Times - March 17, 2009

http://www.nytimes.com/2009/03/18/opinion/18friedman.html

If and when the NYT begins charging to visit their site, it will be money well spent.

Another Quote Without Comment

2009-03-18T19:08:00.002-07:00

Jeff Zucker, the chief executive of NBC Universal, has called comedian Jon Stewart "incredibly unfair" and "completely out of line" with his recent witty criticisms of CNBC, of Mad Money host Jim Cramer and of the entire financial media in general.

For another viewpoint, go to Barron's online and read:

Shorting Cramer
by Bill Alpert of Barron's

"Over the past two years, viewers holding Cramer's stocks would be up 12% while the Dow rose 22% and the S&P 500 16%, according to a record of 1,300 of the CNBC star's Buy recommendations compiled by YourMoneyWatch.com, a Website run by a retired stock analyst and loyal Cramer-watcher."

"We also looked at a database of Cramer's Mad Money picks maintained by his Website, TheStreet.com . . . you would have been much better off in an index fund that simply tracks the market."

http://online.barrons.com/article/SB118681265755995100-email.html

. . . an excellent two-page article examining Cramer and how his numerous stock market picks have fared.

Calculate Your Financial Comeback

2009-03-16T06:10:00.002-07:00

If you are still contributing to your RRSP, back in January the New York Times posted their Comeback Calculator, estimating when your plan will climb back to its peak.

http://www.nytimes.com/interactive/2009/01/06/business/20090106-comeback-graphic.html?ref=your-money

To get a quick look at the Asian markets and later to view the markets in Europe - both views are available before the markets open here in Canada and the U.S. - I have bookmarked this New York Time's link.

http://markets.on.nytimes.com/research/markets/worldmarkets/worldmarkets.asp?excamp=GGBUglobalstockmarkets&WT.srch=1&WT.mc_ev=click&WT.mc_id=BI-S-E-GG-NA-S-global_stock_markets

For a good quick read of mainly U.S news I have found the New York Times and the Huffington Post sites quite good.
New York Times - http://www.nytimes.com
Huffington Post - http://www.huffingtonpost.com

Cheers,
Ken

Bucket Shops and Credit Default Swaps

2009-03-15T20:05:00.002-07:00

This Sunday (March 15, 2009) the New York Times carried an opinion piece titled: Following The A.I.G. Money.
http://www.nytimes.com/2009/03/15/opinion/15sun1.htm

The article said that the now infamous credit default swaps, often referred to as a form of insurance, were more like gambling wagers than insurance policies. Huh? I did a Google search for more information.

I learned that 60 Minutes did a piece last October called The Bet That Blew Up Wall Street. It was an investigation into the central role credit default swaps played in the present global economic upheaval.
http://www.cbsnews.com/stories/2008/10/26/60minutes/main4546199.shtml

As everyone now knows, Warren Buffet called credit default swaps “financial weapons of mass destruction.” For most of the 20th century the present deep, unregulated involvement of the large American banks in the world of derivatives was illegal. But in 2000 Congress changed the law, passed the Commodity Futures Modernization Act of 2000 and exempted Wall Street. It seems odd, but page 262 of the legislation prevents states from invoking existing gambling and bucket shop laws against Wall Street. Gambling? Bucket shops?

What, pray tell, are bucket shops? Well, before the stock market crash of 1907 American cities had gaming houses called bucket shops where gamblers placed bets on whether the price of a stock would go up or down. The speculators did not have to own the stock to profit. They were making, as they say, a side bet – a bet, usually made by gamblers on the outcome of an event, say a poker hand. You don’t have to be a participant in the event to place a side bet.

Like gamblers, the players in the credit default swap market did not have to have, as they say, skin in the game. It was a side bet. They did not have to own the investment on which they were buying private insurance contract – contracts that paid off if the investment, say certain mortgage securities, went bad. They didn't have to own the investment to collect on the insurance – memories of the bucket shops.

Recently Alan Greenspan, the Federal Reserve Chairman at the time, admitted he had put too much faith in the self-correcting power of free markets. A humbled Greenspan acknowledged that he had discovered a flaw in his ideology. He told the House Committee on Oversight and Government Reform, “Those of us who have looked to the self-interest of lending institutions to protect shareholders’ equity, myself included, are in a state of shocked disbelief.”

Under Greenspan the credit default market grew from millions of dollars to a more than $50 trillion dollar monster – and totally unregulated. Neither the big banks nor the investment houses that sold these derivatives set aside the money necessary to cover their potential losses and pay off their bets, a result of deregulation. When the derivative market turned south, and with no money behind their quickly souring obligations, the big players, among them Bear Sterns, Lehman Brothers and A.I.G., all found themselves not on the hook but hoisted painfully high on their own petards.

Rep. Henry Waxman, chairman of the house committee, asked Greenspan if he had learned that his view of the world was not right. Greenspan confessed he had. He said he had “found a flaw” in his personal ideology and he was shocked by his discovery.

“This crisis,” Greenspan has now admitted, “has turned out to be much broader than anything I could have imagined.” And yet, there are still bonuses being doled out on Wall Street.

Read These Articles in the Sunday New York Times

2009-03-15T03:58:00.002-07:00

Appalling - simply appalling. You must read these two articles in today's Sunday New York Times. They work together but if you only have time for one, read the second. It is time that some of the speculators, whose bad bets - and they were bets and not investments - were faced to suffer the consequences of their stupidity and greed.

According to the Times article the reason that many of the credit default swaps were not classified as illegal gambling is that Congress specifically exempted credit default swaps from state gaming laws back in 2000.

". . . some 80 percent of the estimated $62 trillion in credit default swaps outstanding in 2008 were speculative."

More on this later . . .

Read:
A.I.G. Planning Huge Bonuses After $170 Billion Bailout
http://www.nytimes.com/2009/03/15/business/15AIG.html?hp
Following the A.I.G. Money
http://www.nytimes.com/2009/03/15/opinion/15sun1.html

If the New York Times does begin charging for their online paper, these two articles are two fine arguments for spending the money to have access to the paper.

Years ago banking fiasco foreseen . . .

2009-03-11T12:03:00.002-07:00

Much of the mainstream media (MSM) in the United States has been reporting that no one saw this economic disaster on the horizon. But, if one stays alert and reads a lot, there are stories in the MSM challenging this position. The New York Times today, Wed. Mar. 11, 2009, had an excellent article about a research paper written sixteen years ago titled simply: “Looting.”

Economists, George Akerlof, who later won a Nobel Prize, and Paul Romer, a well respected expert on economic growth, argued the promise of government bailouts isn’t merely one aspect of a banking disaster like the present one; no, the government safety net is the core problem.

Read the article here:
http://www.nytimes.com/2009/03/11/business/economy/11leonhardt.html?ref=business

Can you beat Jim Cramer?

2009-03-10T12:43:00.002-07:00

Comedy Central's Jon Stewart has been having fun at the expense of Mad Money's Jim Cramer. Stewart has been pointing out that just weeks before Bear Stearns crashed and burned Jim Cramer was encouraging investors to buy Stearns stock. Check out the link to the Huffington Post story.

http://www.huffingtonpost.com/2009/03/10/jon-stewart-rips-into-jim_n_173454.html

Cramer has been making the rounds, The Today Show and Morning Joe with Joe Scarborough, trying to defuse the Stewart criticism.

What's the truth? Is this Bear Stearns stuff really being taken out of context, or is it indicative of the poor quality of Cramer's advise? Check out Cramer's track record at:

http://caps.fool.com/player/trackjimcramer.aspx

His accuracy is less than 50%. One could do as well flipping a coin and yelling "Booyah!" Take a bow, Jim, and slink off the stage. "Boo, yah!"

WisdomTree DTN and DOO Cut Financials

2009-03-07T20:35:00.002-08:00

About three years ago some things occurred in my life that caused me to think about retirement. I soon realized it is one thing to save for retirement but it is quite another thing withdrawing those savings. I did not find the idea of selling large chunks of my stock portfolio to cover living expenses appealing. I decided to take the dividend approach.

I put a lot of our RSP money in an ETF called Barclays Top 100 Equal Weighted Income Fund. We bought BTH.UN at around $10. It consistently paid a distribution of 10% on our original investment. It lost a couple of dollars after the Canadian government income trust bombshell but we didn’t sell in a panic. We held on for months, continuing to collect our distributions. When BTH.UN had climbed back to $10 we baled.

Now, we find ourselves in another dividend fiasco. Companies that had not cut their dividends in a century or more are now cutting, or eliminating, their dividends. Ouch! Our retirement portfolio allocation has 14% of our investment in American ETFs specializing in dividend paying stocks. Many of these ETFs have a minimum of 25% of their money in financials and some have as much as 50% or more. Again – Ouch!

Not only are stock values dropping by the day but the income needed to wait out this mess is shrinking. So, it was with great interest, and some relief, that I read WisdomTree is switching the investment strategy of two of its dividend-rich ETFs and removing their exposure to the financial section.

The WisdomTree Dividend Top 100 (DTN) and its international sibling, the WisdomTree International Dividend Top 100 (DOO) are replacing their large financial positions with other dividend-paying stocks. Both are replacing the "Top 100" in their names with "Ex-Financials."

With money in DTN, I appreciate this change in focus. This lessens my exposure to the American financial sector. Finally, a “Yeah!”

WisdomTree announcement:http://idea.sec.gov/Archives/edgar/data/1350487/000119312509035748/d497.htm

I passed on Frank Russell.

2009-03-04T13:29:00.002-08:00

Well, the markets around the world collapsed again on Monday, March 2, 2009. If, like me, you decided to tough out this downturn, you must be worrying, “Where is the bottom?” I believe the simple but unsettling answer is no one knows. Certainly many of the expensive money managers do not have confidence-inspiring records.

Let’s examine the road not taken, at least not by me. Once I considered entrusting my RSP funds to Frank Russell Canada Ltd. In the end, I passed. Today, doing the research for this piece, I came to the same conclusion. Frank is not for me.

Using the mutual fund information available on Globefund.com I discovered that $10,000 invested in the Russell LifePoints Balanced Income B fund back in August 2000 would have grown only by $469 by early March 2009. Not much growth.

I then looked at the CIBC Monthly Income fund – a no-load fund that can be purchased with an initial investment of $500 rather than $5000 required by Russell. How would a similar investment made with the CIBC have fared over the same period? It would have grown by $6542 – a return almost 14 times greater than the gold-plated Russell offering. The Russell fund had a yield of 4.49% based on the last trailing 12-month total, while the CIBC fund returned 7.56%.

It leaves me shaking my head.

Today I propose creating four benchmarks based mainly on ETFs and publishing their results along with the results of a couple of Frank Russell Canada Ltd. Funds. Russell posts the fluctuating daily value of their funds at: http://www.russell.com/ca/daily_prices/default.asp

Let the games begin.

Oh, if anyone has had any personal involvement with Frank, with good experiences or otherwise, I would love to hear from them. (An addendum - a Canadian reader contacted me to say that he/she was told that Russell funds purchased through a large Canadian bank do not carry frontend loading.)

Cheers,
Ken

Time to dump the TD Monthly Income fund? Nope!

2009-03-01T17:33:00.002-08:00

If you're here, you are looking for information about the TD Monthly Income Fund. I've posted a screen grab (click the link) showing how an investment in this fund would have grown if invested right at its inception. The TD Monthly Income fund is actually quite amazing, see the screen grab and I'm sure you will agree.

At the deepest drop during the crash of a couple of years ago, it seemed this fund had possibly lost its way. I dumped about three quarters of my units. Today, I have 15% of my portfolio in the CIBC Monthly Income fund and about 10% in the TD Monthly Income fund. My goal is to bring the TDMI fund up to the 15% level.

I've withdrawn about 9% of my original retirement money to live and I am still up almost 50% in just more than two years. These past 26 months have been a fine time to be in the market. (I'm writing this March 22, 2011 and I have been retired since January 9, 2009.)
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Welcome to my post and to my first blog with teeth. This post has been extensively modified since it was originally written. Today, August 28, 2010, I must again modify this post as a month ago Morningstar took another look at the TD Monthly Income fund. It is back in their good graces.

The following is taken from that Morningstar Quicktake Report. These reports are available to me from both ScotiaMcLeod and the TD Waterhouse.

"New risk profile strikes a more conservative stance.

After posting significant losses during the credit crisis, this fund has gone through a bit of a redesign and the net result should be a less risky offering. Style changes like this can sometimes be a cause of concern, though here the adjustments appear sensible and well executed . . . "

One big concern has been addressed. At one point, according to Morningstar, 35 percent of the bond segment of this fund was almost entirely made up of corporate issues, with roughly half of them below investment grade. For this reason, over a year ago I dumped 75 percent of my TD Monthly Income holdings and bought the CIBC's similar offering.

As of the end of July, the total bond weighting was about the same, but it's been redesigned in line with TD Canadian Core Plus Bond. The high yield allocation has been cut in half and the maximum allocation to equities and income trusts has been lowered from 70 percent to 60 percent. This should remove some of the risk and some of the volatility that had crept into this once numbingly consistent investment.

These changes were made in the aftermath of the fund's 12-month loss of 24.9% for the period ending February 2009. Although this was roughly in line with the category median, it was far worse than most of the other monthly income funds offered by the big Canadian banks.

To the credit of the firm and the managers, the fund hung in and made a very strong recovery in both absolute and relative terms as markets recovered. The fund had a great bounce back because the managers wisely did not hastily take risk off the table at the worst possible time. I have to confess, I switched funds at the worst possible moment and have paid dearly for this lack of confidence in the TD managers but I slept well and that is important, too.


There's more to life than investing but investing makes more possible.

Since the recent meltdown in the global markets, I have done quite nicely. At one point I was up about 37 percent. Today I am well off my highs but I am still up about 29 percent since taking a buyout and retiring. And this is despite having spent a big chunk of retirement savings on an almost six week holiday crossing the States and Canada in my vintage British roadster --- a 1969 Morgan Plus 4.

My present portfolio allocation has 15 percent of my RSP invested in the CIBC Monthly Income fund and 5 percent in the TD Monthly Income fund. If the economy continues to slowly rebuild, I am looking at dumping a lot of the bank stock that I purchased at the depths of the stock market crash and moving that money into these two monthly income funds and a mix of ETFs. Retired, and a little desperate, I strive for a successful mix of stocks and bonds delivering both capital gains and cash rewards. (But with bond interest rates so awfully low, I hate to confess, I am totally in the market and out of bonds, except for the bonds buried in my monthly income funds.)

Cheers,
Ken

Yes!

2009-03-01T06:57:00.002-08:00

I started this site as an experiment and thought it had failed. A month past and my site did not appear when Googled. Today I tried again and - amazingly - it showed up.

I am off to a Morgan owners meeting in Burlington today but on my return we will get this blog going.

I had thought of blogging for The London Free Press, if this failed, but now I feel more confident with this approach.

Let me blog for a week and then please let me know what you think.

Cheers,
Ken Wightman

Animoto

2009-02-04T15:40:00.002-08:00

I read about Animoto on the New York Times site. You supply about seven images, pick-out a copyright-free snippet of music from the Animoto library, and then Animoto makes a short, up to 30 second, video.

To get an idea of what can be done, check out my MOA IV movie.
http://www.youtube.com/watch?v=uFXGAUb5Z0g&fmt=18

Cheers.

Morgans Over America IV 2005

2009-01-31T09:54:00.002-08:00

Morgans Over America IV was held in May and June of 2005. Approximately a hundred Morgan owners with 45 Morgans gathered in San Francisco for a six week adventure. The group would travel the Great Pacific Highway, Highway 1, follow Route 66, visit the Grand Canyon and Monument Valley, take a cruise on the Mississippi River, take a deak north into Canada and much, much more.

If you'd like to get straight to the photo album, click here:
http://picasaweb.google.com/KenRetirementTimetoRock/MorgansOverAmericaMOAIV2005#
Note the slideshow tab and if you click on a picture you can change the speed of the slideshow or even pause it.
This car is also found on The New York Times site:
http://collectiblecars.nytimes.com/View_Listing.asp?ListingID=COL901243
... or stay here and just read on.

My wife, Judy, and I left our home in London, Ontario, Canada, in late April in our 1969 Morgan Plus 4. We took mainly two lane roads across the continent to San Francisco where we met up with other Morgan owners from the United States, Canada, Great Britain and Europe. The europeans had their cars shipped, three to a container, to San Francisco, retrieving their cars from customs for the tour.

It truly was an adventure, especially for us. On our way to San Francisco, just outside Salt Lake City, Utah, we had our first flat tire. With spoked wheels and an odd tire size, we were lucky to get it fixed as we needed a replacement inner tube; the tube stem had failed. We had our second flat on day two of the tour and it, too, was caused by an inner tube stem failure. It was then that I realized that even though I had had a number of sets of tires over the years, no one had ever replaced the inner tubes. I'm not rich and always make this clear to those installing new tires. To save me money everyone had reused the inner tubes. No one realized that these tubes were the originals. We were driving on 36-year-old rubber!

Then, just days into the trip, the tappets began to clatter. Not being a mechanic, I knew little about tappets, other than it was not good to hear them as while driving. As we crossed the States, the tappet noise grew louder and louder. But we made it all the way to our hotel in Toronto before the engine died. It only refused to start once on the trip and that was at our hotel in Toronto and then it just refused.

We had the car towed to CMC Enterprises in Bolton, Ontario, where Martin and Steve Beer diagnosed the problem; my camshaft was pooched. We ended our segment of MOA IV by train. I had only been able to arrange a block of five weeks away from the newspaper and so Judy and I had not planned on doing the Toronto to New York city leg of the MOA IV. My little car had completed its part of the tour with one camshaft tied behind its back, so to speak.

Before we picked up our car from the Beers, they installed a complete new set of inner tubes. We haven't had a flat tire since.
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This is my first blog. I recently retired from The London Free Press, London, Ontario, Canada - they had a layoff and I took the fall for our department. But, I must say that the company and our union working together made the layoff less painfull than it might have been. I am planning on blogging about retirement, travel, finance, Morgans and more. Please give me a few weeks to get this off the ground, hope you visit again and I look forward to your comments and suggestions. Cheers, Ken Wightman