The following are all stocks that I would consider holding in a conservative portfolio. Note: I personally do not like bonds at the moment but if I was going to enter the bond arena I'd look at the ETF ZAG. And now to the stocks:
ALA
BCE
BMO
BNS
BPY.UN (This one is actually a little dicey but I like to take a gamble now and then. It's fun.)
CM
EMA
ENB
FTS
H
IGM
NA
NTR
PPL
RY
T
TD
TRP
VIU (an ETF for international exposure)
XRE (an ETF for REIT exposure)
XUS (an ETF for U.S. exposure)
XRE (an ETF for REIT exposure)
There are other stocks that one could consider but this is the list that I settled upon. To keep things simple I would just divide my investments equally between all the number of stocks purchased, except for BPY.UN. I'd only put half as much in the Brookfield offering.
Lastly, if you will need some ready cash, keep enough cash to meet your anticipated needs for two years. Two years maybe a little much as these stocks will, as a group, if they don't cut the dividend, yield more than five per cent annually. Do your own calculations but make sure that you do some and then keep the cash you calculate you must. Don't get trapped into selling low.
By the way, I find a spread sheet, like LibreOffice, a great help in managing a portfolio.
Cheers!
Sunday, March 29, 2020
This may not be the time to permanently exit the market.
I'm writing this for my niece. Why? Her married daughter and her husband saw their investment shrink by about $5,500 and they got out. Was their move wise? The short answer: I don't know.
You see, I got out of the market. I had lost a chunk, I looked at the coming coronavirus tsunami and the simmering petroleum war between OPEC and Russia and I cashed in my chips.
Within days the market was in full correction mode and racing for bear territory. If I had stayed fully invested I would be down in the six digits. Some of my junior oil holdings would have lost 90% of their pre crash value.
Maybe I should have held onto my cash, waiting for the dust to settle but I'm a firm believer in the "you can't time the market" idiom. After a good solid drop, I put half my money back in the market. When the market was deep into a bear-driven frenzy, I put almost all my remaining money back into the market. Then, I sat back and watched the value of my portfolio shrink.
But bear markets do not just drop. They bounce. And each time the market bounces it often returns almost to its previous highs. Hence, the advice: "Buy on the dips and sell on the rallies." This can work but more often than not buying on the dips, buying quality, and holding patiently is an even better rule to follow. It may take years, but it will come back. Patience.
How is it working out for me? Look at the following graph and you tell me.
Let me leave you with this thought: COVID-19 is a virus. It is here and quickly becoming endemic. It is of most concern to seniors and those with certain pre-existing medical conditions. The curve will flatten but not return to zero. Until a vaccine is available, there will be an ongoing background noise of a small amount of illness and, sadly, death (of mostly seniors). There is no easy exit ramp in sight. The economy will bump along for a year or more. Don't bet on a quick fix as folk like Donald Trump are promising. They are talking pipe dreams!
 |
| Purple line with dots is my portfolio. Cash holds its value in crashing market. |
Within days the market was in full correction mode and racing for bear territory. If I had stayed fully invested I would be down in the six digits. Some of my junior oil holdings would have lost 90% of their pre crash value.
Maybe I should have held onto my cash, waiting for the dust to settle but I'm a firm believer in the "you can't time the market" idiom. After a good solid drop, I put half my money back in the market. When the market was deep into a bear-driven frenzy, I put almost all my remaining money back into the market. Then, I sat back and watched the value of my portfolio shrink.
But bear markets do not just drop. They bounce. And each time the market bounces it often returns almost to its previous highs. Hence, the advice: "Buy on the dips and sell on the rallies." This can work but more often than not buying on the dips, buying quality, and holding patiently is an even better rule to follow. It may take years, but it will come back. Patience.
How is it working out for me? Look at the following graph and you tell me.
 |
| The purple dotted line is my portfolio. The blue dashed line is the Canadian market and the red dotted line is the U.S. one. |
Let me leave you with this thought: COVID-19 is a virus. It is here and quickly becoming endemic. It is of most concern to seniors and those with certain pre-existing medical conditions. The curve will flatten but not return to zero. Until a vaccine is available, there will be an ongoing background noise of a small amount of illness and, sadly, death (of mostly seniors). There is no easy exit ramp in sight. The economy will bump along for a year or more. Don't bet on a quick fix as folk like Donald Trump are promising. They are talking pipe dreams!
Saturday, March 21, 2020
A one fund portfolio. How's your advisor doing?
 |
| Note the big loss in 2016. Losses are a part of investing and part of a well managed retirement portfolio. |
Warning: The figures in my little post came from a spreadsheet and the TD historic figures for TDB622. I cannot swear by them. They are close, I'm fairly sure, but without an editor, errors are more possible. The point I am making is valid. Whether my figures are completely accurate is open to question. Cheers!
_______________________________________________________
Do you have a financial advisor? An expert who guides your portfolio into the best investments carrying the least risk. I don't have one. When I did, I could not afford the losses.
Let me give you an example and then you can compare it to your experience.
In my example, a fellow has an RRSP at retirement His wife also has an RRSP. He retires at age 60, taking a buyout. He has a total of $500,000 to invest or with which to buy an annuity. When told an annuity would only deliver $26,000 annually and it would not increase one cent with inflation, he put the money in the TD Monthly Income Fund (TDB622).
Unfortunately, he needed money to live, and so he was forced to immediately remove $26,000 from his buyout money to live. He invested the remaining $474,000 in the TD fund. It was an amazing year. The market was recovering from a serious bear market. Come Jan. he cashed units worth $26,343.20 to raise money to live. It was his portfolio and he was going to increase his payments with inflation. The remaining mutual fund units were left in the fund. He told the bank to apply the DRIP approach to his account.
He continued doing this annually until January 2020 when he removed $31,333.51 to live. This made him smile. If he had gone the annuity route he would still be drawing only $26,000 annually. Life would be getting very difficult if he had purchased the annuity as so many had advised.
He started the year with a mind boggling sum: $698,790. And then the coronavirus hit and the Saudis and Russians got into an oil war. By mid March his portfolio had shrunk to $685,220. He wasn't worried. You see, our senior was a bit of a nerd despite his age. He knew it would take about $602,565 today to buy what $500,000 would buy back in 2009. No matter how one calculated it, even with the great loss, he still had a comfortable amount of money.
He knew he'd have to lose more than $80,000 to be back to where he was when he started. Would he lose another 12 per cent. It was possible. But then he'd lived through a decade of the ups and downs of the stock market while owning TDB622. One year he had actually lost almost $55,000.
This bear was going to consume more than he would have thought possible but that's the market. When he got to worrying, he had only to think of 2009 and 2010 when the market was climbing back from the disaster that was 2008. He was confident the bull would return given enough time.
Sunday, March 15, 2020
Don't panic. Learn.
As you may know, I'm a senior and I'm retired. My pension 1s very poor. It wouldn't pay the annual rent on a one bedroom apartment in the city where I live.
I took an early retirement and had to accept a 25 per cent cut in both my pension and CPP payments. Why the cut? Without an income, I had to start drawing on these five years earlier than planned. Sadly this was still not enough to balance our books and my, who is younger than I am, was also forced to draw on her CPP early and she took an even bigger hit. And these hits are permanent.
We turned to the stock market for income and began buying stocks and ETFs. Thanks to the bull market which just stumbled, we have balanced our bills with ease for the past 11 years. When I retired we had a portfolio worth x-amount. We have drawn annually on our savings for the past 11 year, and yet, before the bear market began clawing back our gains, we had a portfolio more than 60 per cent larger than when we retired.
My wife and I are managing our own investment portfolio. We have self-directed TD WebBroker accounts. We do not have a financial advisor. Why? I gave almost $4,196.71 to a London Life financial advisor back in 2000. When I retired, it took some effort but I got 75% of my original investment back or about $3147.53.
The source of that investment was money that I had accumulated in a London Life annuity policy. They came knocking and promising and I fell for the spiel. If the money had been left untouched, it would have been so much better for me, but not for them. They received an annual management fee for this costly, to me, fiasco.
I've made some other bonehead financial moves, more than I can address in this short essay. But, I must say that I have always landed on my financial feet. I've learned paper losses can be managed if you keep alert and have a modicum of luck. Note the mention of luck. Never discount luck. Always position yourself to be in place financially where a lucky outcome is expected.
What has amazed me over the years is the consistent flow of poor quality of investment information filling the financial pages of our newspapers. For instance, never sell but weather a bear market. Simply hold on, ride it out, and it will recover. I call this advice incomplete.
Check the chart on the right. The purple line with heavy dots is my portfolio. The two other lines are Canadian and American markets. While all the usual market trackers were diving, I held a straight course. Why? I had sold my equities and gone to cash.
Clearly, this was a winning move in the short term but staying out of the market indefinitely is fraught with danger. A big danger is, as the usual advice warns, one risks being caught offside when the bull returns.
And so I put half my funds back into the market when my investments had entered true correction territory. I immediately lost thousands. Sounds bad and in one sense it was; I lost thousands. But, as a percentage loss my loss slashed by half by the fact that half my porfolio was still in cash.
Think about it. If you have a hundred thousand dollar retirement account and you enter the market when it has already corrected, your losses are zero and the market losses are10 per cent or more. If you only invested half your cash and it dived toward bear territory in tandem with market, you would lose $5000 immediately. The market would be down a full 20 per cent or more but you would be down only five per cent.
I have never seen this pointed out in any newspaper account detailing what happens during a market collapse.
With the market in full bear market mode, I invested the vast majority of the second half of my cash holding. Like the first money, this second round of investments dived as well. I lost thousands more. A reporter who doesn't understand the market might very well be reporting that I was now caught in the middle of financial blood bath. Oh pooh! This isn't all that bad at all. Do the math.
You are down by five per cent and double your holdings. You now have $95,000 invested in equities. You lose a further five per cent or $4750. You have lost a total of $9750 from a $100 thousand portfolio. You are down 9.75 per cent. But the market is down 25 per cent.
Your investments have not even entered correction territory. And, as is par for this course, the next day the markets take a bounce. This is a screen grab of the gain my portfolio made immediately after the bear market buy.
The info on the left only applies to one of my portfolios. The other portfolios all performed well. One was actually up 13.7 per cent while another was only enjoyed an increase of 3.68 per cent. For this reason we will only claim only an overall recouping of six per cent. But again, do the math. You are now down only about 3.75 per cent while the media is reporting that retired seniors are facing financial disaster.
Facing a disaster? Maybe. Maybe not. You have almost all your money back but, let's be honest, it is all in paper gains. In the coming months of potential financial turmoil you may well lose at least ten percent of it. Maybe more. But, and it is a big but, your dividend has taken a big jump in real, hard cash. Your portfolio now contains far more stock. Each additional share, and you have hundreds of additional shares, each one pays a nice dividend.
My dividends, for example are up in the five digits. I fully expect to see dividends cut. I can afford it. I have built a cushion into my portfolio.
It is not unreasonable to believe you may realize a dividend yield of about five per cent, or better, calculated using the projected income and your total investment. If, like me, you can squeak by with a dividend income as low as 3.5 per cent for a year or two, you can weather a cut in your dividend income of about 30 per cent.
If you have kept a little money on the side to supplement your dividend income for a couple of years, you are in good shape. Headlines like the one on the Financial Post will not make you lose sleep. And remember, bear markets do not last. Some are as short as three months. Others may last as long as three years. In the end, all are followed by roaring bull market that climbs halfway or more to its former highs.
I took an early retirement and had to accept a 25 per cent cut in both my pension and CPP payments. Why the cut? Without an income, I had to start drawing on these five years earlier than planned. Sadly this was still not enough to balance our books and my, who is younger than I am, was also forced to draw on her CPP early and she took an even bigger hit. And these hits are permanent.
We turned to the stock market for income and began buying stocks and ETFs. Thanks to the bull market which just stumbled, we have balanced our bills with ease for the past 11 years. When I retired we had a portfolio worth x-amount. We have drawn annually on our savings for the past 11 year, and yet, before the bear market began clawing back our gains, we had a portfolio more than 60 per cent larger than when we retired.
The source of that investment was money that I had accumulated in a London Life annuity policy. They came knocking and promising and I fell for the spiel. If the money had been left untouched, it would have been so much better for me, but not for them. They received an annual management fee for this costly, to me, fiasco.
I've made some other bonehead financial moves, more than I can address in this short essay. But, I must say that I have always landed on my financial feet. I've learned paper losses can be managed if you keep alert and have a modicum of luck. Note the mention of luck. Never discount luck. Always position yourself to be in place financially where a lucky outcome is expected.
What has amazed me over the years is the consistent flow of poor quality of investment information filling the financial pages of our newspapers. For instance, never sell but weather a bear market. Simply hold on, ride it out, and it will recover. I call this advice incomplete.
Clearly, this was a winning move in the short term but staying out of the market indefinitely is fraught with danger. A big danger is, as the usual advice warns, one risks being caught offside when the bull returns.
And so I put half my funds back into the market when my investments had entered true correction territory. I immediately lost thousands. Sounds bad and in one sense it was; I lost thousands. But, as a percentage loss my loss slashed by half by the fact that half my porfolio was still in cash.
Think about it. If you have a hundred thousand dollar retirement account and you enter the market when it has already corrected, your losses are zero and the market losses are10 per cent or more. If you only invested half your cash and it dived toward bear territory in tandem with market, you would lose $5000 immediately. The market would be down a full 20 per cent or more but you would be down only five per cent.
I have never seen this pointed out in any newspaper account detailing what happens during a market collapse.
With the market in full bear market mode, I invested the vast majority of the second half of my cash holding. Like the first money, this second round of investments dived as well. I lost thousands more. A reporter who doesn't understand the market might very well be reporting that I was now caught in the middle of financial blood bath. Oh pooh! This isn't all that bad at all. Do the math.
You are down by five per cent and double your holdings. You now have $95,000 invested in equities. You lose a further five per cent or $4750. You have lost a total of $9750 from a $100 thousand portfolio. You are down 9.75 per cent. But the market is down 25 per cent.
The info on the left only applies to one of my portfolios. The other portfolios all performed well. One was actually up 13.7 per cent while another was only enjoyed an increase of 3.68 per cent. For this reason we will only claim only an overall recouping of six per cent. But again, do the math. You are now down only about 3.75 per cent while the media is reporting that retired seniors are facing financial disaster.
Facing a disaster? Maybe. Maybe not. You have almost all your money back but, let's be honest, it is all in paper gains. In the coming months of potential financial turmoil you may well lose at least ten percent of it. Maybe more. But, and it is a big but, your dividend has taken a big jump in real, hard cash. Your portfolio now contains far more stock. Each additional share, and you have hundreds of additional shares, each one pays a nice dividend.
My dividends, for example are up in the five digits. I fully expect to see dividends cut. I can afford it. I have built a cushion into my portfolio.
If you have kept a little money on the side to supplement your dividend income for a couple of years, you are in good shape. Headlines like the one on the Financial Post will not make you lose sleep. And remember, bear markets do not last. Some are as short as three months. Others may last as long as three years. In the end, all are followed by roaring bull market that climbs halfway or more to its former highs.
Saturday, March 14, 2020
Why are newspapers such questionable sources of financial advice?
I worked for decades in the news businesses. I worked at two newspapers and one television station. During that time I learned that newspaper folk, if they are reporters they like to be called journalists, often get caught up in the stories of the day. For that reason, I like the term reporter rather than journalist.
There are two big stories in the news today: corona virus or COVID-19 and the ongoing oil pricing and pumping war between Saudi Arabia and Russia. The financial crisis story is a result of the first two stories.
Reporters deliver quickly gathered stories surrounding the events of the day; ideally, journalists keep us informed with factual, in-depth stories set in the proper context. And still we readers often come away with the wrong immediate impression of a story? Why? Answer: headlines. Headline writers strive for punch and brevity. I've often heard reporters complain about the headline used to draw attention to their stories. Unfortunately, headlines set the tone for the story and do it before we've read even one word. That can be a problem.
For instance, today I read an article by Post Media's Financial Post that carried the headline 'Disasterous': Seniors face double threat from pandemic as retirement portfolios walloped by markets in turmoil. The dek, the summary appearing below the headline, went on to claim negative returns at a time of withdrawals mean retirees risk running out of money. Petty frightening stuff.
To illustrate the problem the article told the story of a 75-year-old (couple) with a $500,000 portfolio. They planned to live on this money for ten years at a withdrawal rate of $50,000 per year. A 20 per cent drop in capital would reduce their annual income by $10,000 to only $40,000.
If you think about this story, it doesn't add up. Not a all. This is a financially astute couple. They have managed to accumulate $500,000 outside a RRIF. This means they can make withdrawals free of withholding tax. And they do not have to deal with withdrawal limits as they would if the funds were in an RLIF.
How do we know our fictional couple does not have a RIF. Simple. The story goes on to say that there are also implications for those with RRIFs.
So, let me flesh out the story of our fictional couple. They must have been invested in equities or they would not have lost 20 per cent of their money. More than likely, they were aware of the promise and the threat inherent in investing in stocks.
As investors, and clearly successful ones, they understood how money grows when invested. A mixed ultimate-growth portfolio of pure equities and no bonds, 70% Canadian and 30% U.S. stocks, a common mix, grew at an average rate of about 9% over the past ten years. They might have hoped to see that growth continue. If this was their thinking, their dream may have been optimistic but it was not unreasonable.
See the graph on the left. It is amazing. It shows the results of making an annual withdrawal of $50,000 from a $500,000 portfolio which is growing at an average rate of nine per cent. It takes 26 years to be bled dry.
Our couple had their $500,000 portfolio pared down to $400,000 by the bear market and then they removed $50,000 to live. They were left with only $350,000.
It is amazing but with only $350,000, our couple could still withdraw $50,000 annually and have it last 14 years. All that's necessary is that the growth rate remain at nine per cent.
A bear market loss of 20 per cent removes an investor's rose-coloured glasses. Our fictional couple would be concerned. They might even panic and look for a solid investment with a dividend yield not threatened by a dividend cut. One investment that answers our couple's needs is CIBC. Its yield recently hit just more than 8.3% when the stock fell to a low of almost $70, down from a high of nearly $116 in the last year.
Canadian banks are known for not cutting their dividends, even in tough times. The dividends won't be increased, possibly for a number of years, but they also be cut. Buying CIBC would not be unreasonable. A $350,000 portfolio of CIBC stock with a dividend yield of eight per cent might very well last 10 years. They could have bought 4997 shares of CIBC paying an annual dividend of $5.84 for a total annual dividend income in the first year of $29,182.48. They will have to deplete their equity holdings by only $20,817.52 in the spring of 2021.
Of course, our couple would be keeping their fingers crossed that they managed to buy in at the ultimate low. Only time will tell if they did. But the CIBC stock has already climbed back to $84.46. And their portfolio of $350,000 is now valued at more than $420,000. Remember, their annual dividend income is now in the neighbourhood of $29,180 annually. They only need to redeem $20,820 in equities in the coming year. With a dividend of 8.34% calculated on the cost of their shares when purchased, I believe their portfolio will last the full ten years. (I confess, I'm surprised.)
Somethings to keep in mind: the average Canadian bear market lasts only 10 months, and that is using the Royal Banks figures based on a bear market kicking in when a 15% decrease in value from the market high occurs. The longest bear market lasted 23 months according to the RBC and the shortest only three months. The bank also says that historically after a bear market, a significant bull bear market follows.
It appears our couple is safe and may well realize a better outcome than most would imagine possible while we are still in the depths of a serious market correction.
I'm retired and I'm in the market. I have to be. I could not live on the interest being paid outside the market.
I could see the virus storm on the horizon. Everyone knew Saudi Arabia and Russia were about to get into a financial fracas. I got out of the market and went to cash.
I put half my portfolio back in the market when a full correction based on my holdings had occurred. I put the second half of my portfolio back in the market when it had fallen deeply into bear market territory. Now, I am sitting back to weather the storm. My income from my investments has actually increased by about 65 per cent. I'm ready to batten down the hatches and weather any dividend cuts that come my way. You see, I live on my dividends. I do not part with equity easily.
And how has my approach worked out for me? Well, check the chart of my one portfolio. I have to have a number of portfolios. One cannot mix RIFs, LIFs, TFSAs and non-registered accounts. My portfolio is the purple line with dots and the nice up-tick at its end.
And did I mention that I bought some CIBC when the price crashed?
There are two big stories in the news today: corona virus or COVID-19 and the ongoing oil pricing and pumping war between Saudi Arabia and Russia. The financial crisis story is a result of the first two stories.
Reporters deliver quickly gathered stories surrounding the events of the day; ideally, journalists keep us informed with factual, in-depth stories set in the proper context. And still we readers often come away with the wrong immediate impression of a story? Why? Answer: headlines. Headline writers strive for punch and brevity. I've often heard reporters complain about the headline used to draw attention to their stories. Unfortunately, headlines set the tone for the story and do it before we've read even one word. That can be a problem.
To illustrate the problem the article told the story of a 75-year-old (couple) with a $500,000 portfolio. They planned to live on this money for ten years at a withdrawal rate of $50,000 per year. A 20 per cent drop in capital would reduce their annual income by $10,000 to only $40,000.
If you think about this story, it doesn't add up. Not a all. This is a financially astute couple. They have managed to accumulate $500,000 outside a RRIF. This means they can make withdrawals free of withholding tax. And they do not have to deal with withdrawal limits as they would if the funds were in an RLIF.
How do we know our fictional couple does not have a RIF. Simple. The story goes on to say that there are also implications for those with RRIFs.
So, let me flesh out the story of our fictional couple. They must have been invested in equities or they would not have lost 20 per cent of their money. More than likely, they were aware of the promise and the threat inherent in investing in stocks.
As investors, and clearly successful ones, they understood how money grows when invested. A mixed ultimate-growth portfolio of pure equities and no bonds, 70% Canadian and 30% U.S. stocks, a common mix, grew at an average rate of about 9% over the past ten years. They might have hoped to see that growth continue. If this was their thinking, their dream may have been optimistic but it was not unreasonable.
 |
| Link to calculator. |
Our couple had their $500,000 portfolio pared down to $400,000 by the bear market and then they removed $50,000 to live. They were left with only $350,000.
It is amazing but with only $350,000, our couple could still withdraw $50,000 annually and have it last 14 years. All that's necessary is that the growth rate remain at nine per cent.
A bear market loss of 20 per cent removes an investor's rose-coloured glasses. Our fictional couple would be concerned. They might even panic and look for a solid investment with a dividend yield not threatened by a dividend cut. One investment that answers our couple's needs is CIBC. Its yield recently hit just more than 8.3% when the stock fell to a low of almost $70, down from a high of nearly $116 in the last year.
Canadian banks are known for not cutting their dividends, even in tough times. The dividends won't be increased, possibly for a number of years, but they also be cut. Buying CIBC would not be unreasonable. A $350,000 portfolio of CIBC stock with a dividend yield of eight per cent might very well last 10 years. They could have bought 4997 shares of CIBC paying an annual dividend of $5.84 for a total annual dividend income in the first year of $29,182.48. They will have to deplete their equity holdings by only $20,817.52 in the spring of 2021.
Of course, our couple would be keeping their fingers crossed that they managed to buy in at the ultimate low. Only time will tell if they did. But the CIBC stock has already climbed back to $84.46. And their portfolio of $350,000 is now valued at more than $420,000. Remember, their annual dividend income is now in the neighbourhood of $29,180 annually. They only need to redeem $20,820 in equities in the coming year. With a dividend of 8.34% calculated on the cost of their shares when purchased, I believe their portfolio will last the full ten years. (I confess, I'm surprised.)
Somethings to keep in mind: the average Canadian bear market lasts only 10 months, and that is using the Royal Banks figures based on a bear market kicking in when a 15% decrease in value from the market high occurs. The longest bear market lasted 23 months according to the RBC and the shortest only three months. The bank also says that historically after a bear market, a significant bull bear market follows.
It appears our couple is safe and may well realize a better outcome than most would imagine possible while we are still in the depths of a serious market correction.
I could see the virus storm on the horizon. Everyone knew Saudi Arabia and Russia were about to get into a financial fracas. I got out of the market and went to cash.
I put half my portfolio back in the market when a full correction based on my holdings had occurred. I put the second half of my portfolio back in the market when it had fallen deeply into bear market territory. Now, I am sitting back to weather the storm. My income from my investments has actually increased by about 65 per cent. I'm ready to batten down the hatches and weather any dividend cuts that come my way. You see, I live on my dividends. I do not part with equity easily.
And how has my approach worked out for me? Well, check the chart of my one portfolio. I have to have a number of portfolios. One cannot mix RIFs, LIFs, TFSAs and non-registered accounts. My portfolio is the purple line with dots and the nice up-tick at its end.
And did I mention that I bought some CIBC when the price crashed?
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