Over the past few nights I have been working on the ultimate ETF retirement portfolio. The portfolio must produce something close to the present income from my present retirement portfolio, a portfolio containing mostly stocks with a smidgen of ETFs.
I like to think of my portfolio as fairly solid. Not too volatile. But it is not true. It has lost as much as 20% of its value in long, deep bear markets.What has not been volatile has been the income. With investments like Emera, Fortis, Embridge, Bank of Montreal and Telus and many more, my dividend income very rarely suffers any shrinkage.
It is a very tough order to ask an ETF portfolio to perform as well as a carefully constructed portfolio of top-of-the-line dividend paying stocks, but I think it can be done. Or maybe I should say that I hope it can be done. ETFs are self-balancing. I would love to free myself of the chore, the responsibility, of keeping my retirement income portfolio running.
Today, I created a nine ETFs portfolio with ten percent of its value in cash. If I have calculated correctly it will produce the same yield as my present portfolio. To boost the yield, I included a number of Bank of Montreal created options-boosted ETFs. Options will boost income but will also put a ceiling on capital gains. A downside to using options. The flip side is that options will reduce losses. An upside to using options.
My Nine ETF Retirement Income Portfolio was created with $1,110,000. A full ten percent was kept in cash. Deposit this in a money market fund like TDB8150 today and reap a yield of 4.55% until at least June I believe. At the end of its first day, it had gained $2,688.49. A good start.
My Nine ETF Retirement Income Portfolio should yield something approaching five percent and be resistant to falling quickly in bull and bear markets thanks to the generous use of options-enhanced ETFs.
It should show fair capital gains as it contains some exposure to the U.S. market. A full ten percent exposure by way of XSP from iShares. The international exposure should also show fair capital gains thanks to the inclusion of Vanguard VIDY.
At the first of next month, and every month thereafter, I will withdraw $4,200 to live just as I would if this were a real retirement portfolio. Come January, I will make an inkind withdrawal of enough stock to meet the government demands relating to annual RIF withdrawals. The stock will be transferred to an imaginary TFSA opened for the sole purpose of accepting the annual RIF withdrawals.
You may well wonder at the inclusion of ZUT and RIT in this portfolio. I drilled down into the investments contained in the ETF portfolio leaders. I felt my portfolio needed more exposure to utilities and to real estate.
- XEI 10%
- CDZ 17.5%
- RIT 7%
- ZUT 5%
- ZWC 20%
- XSP 10% This entry has been corrected. Originally, there was a typo. Oops!
- ZWH 10%
- VIDY 5%
- ZWG 5%
- Cash 10%
It doesn't look like it but these percentages were worked out using a spreadsheet. The only clues are the percentages devoted to CDZ and RIT.
If this portfolio delivers, especially if it delivers when compared to my present porfolio, I may well slowly sell my stocks and embrace my Nine ETFs Retirement Income Portfolio.
Stay tuned.
A month has gone by. It is now early May and my portfolio is down. I withdrew my first monthly payment of $3,666.66.
If this were real, I would not be celebrating but I would not be too concerned either. Come back in a month and we will see how we are doing then.
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