The story tells itself

Last year I opened five test portfolios, each had an opening balance of $10,000. The TD Dividend Growth D-series was easily the best mutual fund investment of the five. The D-series is only available to those with self-directed investment accounts. The perk encouraging investors to use the D-series in the reduce MER compared to say the I-series.

Other than the MER, the two mutual funds are the same. Note how much better the D-series performed compared to the I-series.

The TD Monthly Income D-series performs better than the same fund in the I-series. Thanks to the balanced mix of the fund, it contains a lot of bonds, it tends to be less volatile than the dividend growth fund. It neither climbs as high during good time, nor dives as far down during the bad times.

Read the names of the funds. Clearly the Comfort fund does not deliver much comfort. It did not come anywhere near performing as well as the simple dividend growth fund. And the retirement fund would keep me up nights. It failed to perform. It hardly left the starting gate. The clue that these two might be slugs were the words comfort, retirement and conservative.

If you are going to make real money in the market, you are going to have to take some risks. This means investments like the dividend fund are usually a better bet. You may lose in the short run, but in the end, if you have the guts to hang tough, you should come out far ahead of the conservative competition.

And, one can always mix the funds one buys. Some in a U.S. Index fund, some in the TD Monthly Income to add some bonds and some in the Dividend Fund for income and increased growth. I've done some tests of such mixes and all the tests have performed rather well. In fact, I'm running another one of these tests right now. Come back in six months and I may be posting some of the first  results.

It's January 4th and there are reasons to smile

The market is down. My wife and my retirement is down in the large five figure range. And I am smiling. Read on and learn why.

Each year a minimum amount of one's RIF must be withdrawn by law. The minimum percentage that must be withdrawn is set by the Canadian federal government. Charts of this are readily available online. This year we are forced to withdraw a full five percent from our RIFs.

Judy and I do not remove this money in cash but we remove it in-kind by transferring a block  of stock equal to the minimum withdrawal to our TFSAs. If there is not enough contribution headroom in the TFSA to absorb all the withdrawal, we transfer the remaining stock to a non-registered self-directed account. Of course, there is always a small remainder that must be transferred as cash. The cash value is always an amount less than the value of one share of the stock being transferred.

The nice thing about this in-kind removal is that the tax does not have to be paid until next year. There is no withholding tax applied to the minimal withdrawal from a RIF or LIF. The stock can sit accumulating dividend income in one's TFSA until next year when the tax comes due.

Now, this is where it gets really good. We need money to live. There is no maximum amount restricting how much one can withdrawal from a RIF. Sadly, with a LIF there is a maximum but one must just deal with that problem when it arises. So once a year, we remove all the dividend income earned by our RIF. We tend to make this withdrawal a few days after completing and checking our in-kind withdrawals. We try to keep the withdrawal to no more than four percent but it can be more if we made more and I don't worry unduly about it. We still have all our stock. And we always have 30% deducted for income tax. This is high but it ensures that come next year we will not face a huge tax bill related to our in-kind transfer. In fact, I see us getting a refund. Yeah!

With TD Direct Investing clients must call the bank and make the in-kind withdrawals with the assistance of a stock trader. I find calling just before the markets open is the best time to call but I make no promises. I always have all relevant information available:

• RIF account number
• amount of mandatory withdrawal
• stock to be transferred
• TFSA account number
• TFSA contribution headroom available (Check this carefully. Do not over-contribute.)
• Non-registered account number
• Do all the math in advance. This is important. The bank reps are busy. Mistakes happen. There are often calculations that must be done to determine one's TFSA contribution room. The bank rep may not have those numbers. And with LIFs one must subtract one's in-kind withdrawal from the maximum withdrawal to come up with the cash withdrawal amount. Do not over contribute to a TFSA or over withdraw from a LIF. 

The nice thing about the market being down right now is that we get to move more stock to our TFSA and then it sits there producing a stream of dividend income and eventually a nice capital gain.

My wife and I are nicely set for the coming year.

Click the LINK below to reach an excellent financial blog

If you are new to investing, click on the link. LINK. And don't just study the suggested portfolios, also read the background investment information provided.

I have played with some of the suggested portfolios and there are times I wonder if today I'd be in a better place financially if I'd stayed in the Couch Potato fold.

My gut feeling is a few solid, pure stock holding delivering very good dividends is the necessary spice to make my investment portfolio work. I'm thinking of stocks like Emera (EMA) or a good Canadian bank stock with a decent dividend.

If there is big pullback, and it really looks likely, I'm sure I will be moving some of my money into some of the ETFs suggested. I may not go whole hog into index investing but I'll be making a big commitment.

Attention nieces, nephews and other family members

When we got together in the late summer, I heard a lot of talk about getting into the stock market to make money for retirement or future education or simply to get wealthy. The market had been on a record setting bull run and optimism was running rampant with the bulls.

Well, the bulls have halted their stampede. The bears have come out of hibernation and holding onto one's gains seems to be the name of the game today. And its a tough game. And it may be the wrong one. I don't know. I'm holding on. I'm resigned to losing a lot. I celebrated my wins over the years and now I must take my inevitable licking.

So far I have sold one stock: Hydro One. And that was not a sale based purely on the recent market weakness. Hydro One, H, is showing of decline based on its close connection to and control by the provincial government in Ontario under the guidance of Doug Ford.

There are other stocks I might jettison if there is a good rebound, one big enough to get me back into the black. But, there has to be a rebound. I'm not prepared to take the large cut in income that accompanies the sale of a lot of my stock holdings.

That said, I am not going to simply sit tight and wait. I'm going to watch my holdings carefully in the coming year. If I see a good exit opportunity, a chance to re-jig my portfolio to  put it more inline with my present thinking, I'm going to jump at it.

For instance, I've owned mostly XIC for years but I've also held a much smaller position in XMD. I have not seen much advantage to this strategy. XIC has generally performed better than XMD and it has paid a larger dividend. Every so often XMD outperforms XIC and when this happens at some point in the future, I'm selling my XMD and switching the funds into a better performing investment. I might even put the money into XIC. I'll make more in dividend income and my portfolio will be a little simpler.

I'm also looking at my bank holdings. In the coming year, there may be a chance to diversify my exposure to the Canadian banks. With the banks, I'd like to hold more banks not less. I'm mostly into the Royal, the ScotiaBank and the TD. I'd like to spread this investment out a bit, to diversify my holdings, by buying some Bank of Montreal and some CIBC at the very least.

But I won't be dumping any bank stock without a matching purchase anytime soon. The banks have a history of resisting the temptation to cut dividends during tough times. I'm going to bet the Canadian banks will hold to that tradition and continue to pay me quarterly come whatever in the market. And nothing, short of a recovery, lessens the pain of a bear market like money, like dividend income.

So, my advice to all my relatives looking to get into the market is "have a plan". Develop an allocation model based on your own personal needs and bolstered by your personal financial beliefs. And then, stick to it. When the time looks right, buy the good stuff, build your portfolio and do it with the confidence that comes from having a plan.

Stay in touch and have a happy new year!

What's black and what's red

What is black, in positive territory, and what is red, losing ground, in my portfolio? That's easy. Anything I bought back when I retired has climbed massively and is still up nicely from when I bought in. A market downturn of 50% would not drive these holdings into negative territory.

My recent buys are mostly a different story. Almost uniformly down. In the red. Emera and Fortis are about the only recent buys that are showing a profit. IPL, PPL, SJR.B . . .  and the list goes on, are all down. Some are now down in the four figures. Ouch!

Oh well - sigh - tomorrow is another day and, shortly, another year. And it may get a lot worse before it gets better. I'll sell a little on the pops -- if there are any pops in the near future.

Cheers,
Rockinon!

Battening Down the FInancial Hatches

Since the beginning of last year, Judy and my portfolio has dropped some 7.9% in overall value. That sounds bad but remember, we're retired and we take out some 3.5% annually, or a bit more, to live. Still, in a good year, we remove some and the market goes up even more. In a good year we make money. This year we lost it.

I bought some stock late in the year and much of it wilted. Bad move. Yet, my Emera and Judy's Fortis both climbed very nicely. Those two were the standouts. My TD Bank is down in the four digits and sadly it is par for this course at the moment.

It looks as if the correction is almost here. (A correction is a drop of 10% or more and a bear market kicks in when the losses hit 20% and more.) I'm looking about to raise some cash for future buying opportunities. It's tough letting go of stuff at a loss. I'm very poor at it. My Hydro One was perfect for dumping, it was up and between the labour problems and Premier Ford, it looked like it may take a quick trip to the mat. If it drops below $18.99, I may come off the sidelines and buy back in.

I've been pitting our actual present portfolio against a portfolio based on an allocation model that I calculated would be good for an aging geezer with a bad heart and against another portfolio called the Couch Potato. So far, all three are jockeying for the lead position. That said, our present portfolio is pumping out the most dividend cash. This lets me sleep at night despite the recent losses.

I'm working on a new, allocation model portfolio. It will be a bit more diversified than our present portfolio. If Judy thinks it looks good, I may make the leap to a full re-balancing in the coming year.

And what must the new portfolio offer in order to win our hearts? More dividend cash -- but without taking bigger risks. Too big a dividend is a dividend that almost certainly will be cut. One should not be greedy.

Cheers folk!

Freedom Fifty-five failed to deliver; it lost more than 25% of my money!

Look carefully at the posted bar graph.  I invested almost $4200 in March of 2000 with Freedom Fifty-five. It was an investment in my future retirement. After 15 years, only 41% of my original investment remained. The London insurance company running Freedom Fifty-five had lost 59% of my investment.

As bad as this was, I was assured that on turning 71 a 75% guarantee would kick in. I'd get back 75% of my original investment or $3147.53. This was guaranteed.

Well, I turned 71 and I didn't even walk away with my guaranteed amount. After contacting London Life in July, an investment expert appeared at my door. He was only involved for a brief time but between then and December 5.6% of my guaranteed amount vaporized. Amazing.

While the experts were investing my retirement fund, I was buying Fortis shares. I see Fortis as a solid investment for a retiree. It goes up and down in value but it always delivers a decent dividend. My Fortis grew by more than 10% in the time that my Freedom Fifty-Five fund shrunk 5.6%.

My Fortis pays 4.4% on my original investment. If my guaranteed funds had been put into Fortis, I'd already have been sent about $35. Granted, that's not much but it's still $35 more than I got from my Freedom Fifty-five investment. I was invested for almost 19 years and received not one penny of retirement income.

I'm going to let London Life and Freedom Fifty-five know about this post. If anyone at the London firm wants to explain how their whiz-bang investment experts lost not only a lot of my original funds but under their guidance continued to lose big chunks of retirement funds, they are more than welcome to post a comment.

A late add: I never heard a peep from them. Not one word.