Markets don't just go up

Since I retired in early 2009, the stock market has generally been a damn fine place to have one's money. Oh, there have been downturns but they didn't last and they left few financial scars. Now, it is 2018 and the party is getting a little long in the tooth. I've been betting the correction would not arrive until 2020 but since expanding my portfolio recently, the market has been retracing its steps almost daily.

I had been sitting on a pile of cash. I was certain a 10% correction was in the cards. I waited and waited and waited. With every passing month I sacrificed dividend income. Finally, in the last month or so, I decided I was wrong. I should not be on the sidelines. I started buying.

I bought the following:

• ALA (Altagas)
• EMA (Emera)
• FTS (Fortis)
• H (Hydro)
• IPL (Inter Pipeline)
• PPL (Pembina Pipeline)
• SJR.B (Shaw Communication)
• TD (TD Bank)
• TCN (Tricon Capital Group)

And how have I done? I'm down. I've lost $1551.89. Oh, Emera, Fortis and TD are up but all the rest are down in varying amounts. Altagas is down a full 7 percent and Pembina Pipeline is following close behind with a 5.93 percent loss. One could argue that Pembina is a greater loss as I invested more in the pipeline and so have now suffered a three digit decline.

Am I kicking myself for making my recent stock buys? A little. But I'm kicking myself for not having simply stayed in the market. If I had, I'd have paid less for many of the stocks that I bought and I'd have collected a year's worth of dividends to cushion today's pullback. Investors are warned not to try and time the market. It is advise I usually follow.

There were no withdrawals, simply losses.

I turned 71 this summer. This milestone had a little extra meaning for me. It meant that London Life would finally be returning what's left in my Freedom Fifty retirement account. I invested about $4200 almost twenty years ago.

If I'd simply put that money in the TD Monthly Income Fund and reinvested the dividends, today I'd have about $14,000. Instead, I entrusted the money to London Life and today I only have about $2100. The only ray of sunshine brightening this whole story is that at 71 a guarantee kicked. London Life guaranteed if I waited until the age of 71 to ask for my money, it would send me at least seventy-five percent of my original investment. I'm hoping to have about $3150 returned. I say hoping because lately I have found getting London Life to put this in writing has proven difficult.

That said, I submitted a form last Tuesday. I should see the remnants of my investment soon and, when I do, I'll post the news.

The point of this post is to say, don't put all your bets on one horse when it comes to investing. If I'd have given my entire RRSP to  London Life, as was suggested by its rep, I'd have lost a massive amount of money. I'd been in financial trouble today and I'm not because I didn't.

If I were young and just starting out, and I knew what I know now, I'd take a big chunk of my money and invest it following the advice found on the Canadian Couch Potato investment blog. I'd hold a little money back to invest directly in stocks I really liked. Why would I do that? For fun. Investing can be, and should be, fun.

The last thing that I'd do is give my money to an investment advisor. I have seen two recently and both only made one solid promise: they would charge me to manage my money. One admitted to a fee of three percent of the value of my portfolio annually the other fudged their answer.

And I believe them. They will take out their fees without fail. London Life took out their fees annually. Their fees were part of the problem. Those fees made it very hard to earn enough money to replace the money that Freedom Fifty Five lost in the first year or two.

Finally, as I got older and got more and more comfortable with investing, I'd carefully prepare an allocation goal. I'd create a portfolio based on this allocation using the software supplied by whichever bank I was using to manage my actual portfolio. The practice portfolio would be based on my actual portfolio and then I'd sit back and see which approach delivered the best results.

And, I am actually taking my own advice even though I am now 71. I am tracking three portfolios: one my actual portfolio and two practice portfolios.

If my actual portfolio is worth X today. My allocation-based portfolio is up .14 percent and my Couch Potato Portfolio is down .08 percent. But there is one big difference between my present portfolio and the other two. My portfolio, structured for income, is paying thousands of dollars more than either of the other two portfolios.

Dividend-paying stocks can ease the pain of a decline

Don't buy just for the dividend. This is a good rule. Stocks with crashing values often path through a phase where the dividend yield is great on paper. The dividend has held while the stock price has dropped. This is not a buying opportunity. Sadly, but not unexpectedly, the dividend is often cut and both the stock price and the dividend tumble into the dumpster. As the rule says, don't buy just for the dividend. It can be ephemeral.

That said, a good stock with a good dividend has the dividend as an ally, a backstop to loss. Bank stocks rise and fall but the Canadian bank stocks have a history of retaining dividend payouts throughout each cycle. I own Royal, Scotiabank and TD. My BNS is down at the moment but its dividend looks secure.

Recently I bought Pembina Pipeline. Today my investment is down $405. Ouch. That said, my 400 shares will yield $912 in the coming year in dividends. With today's loss factored in, I am still $507 to the good. At the price I paid to buy this stock, the dividend is still delivering 2.76% on my investment.

Yes, I know, the stock may yet fall farther. Today's numbers are just a snap shot of how the math performs at the moment. It may not be as good tomorrow. But, and this is more likely, at some point in the relatively near future the math will be better, much better. If I had wanted to avoid volatility, I would have bought a GIC. But then I might have had to settle for as little as one percent on my money. Even with a $405 loss, I am still doing better than if I had bought a GIC to keep for a year.

End of Day Add: At market close today my total PPL loss stood at $368.99. Pembina made a gain today despite the overall market suffering a very small loss. I will try and remember to come back in a month and tell how my PPL purchase is working out.

An allocation plan for my retirement portfolio

I've been retired since 2009. My pension was inadequate and I needed dividend income from my investments to live. Sadly, I don't have enough invested, or so the bank tells me. I've got a problem and yet I've lived well for the past nine years. How? I've put my money to work in solid companies paying decent dividends.

A TD Waterhouse estimate of my dividend income for next 12 months. Click on image to enlarge.

It has been easy being an investor during the past nine years. The market has been very forgiving. According to one trusted source, the present party should continue until 2020. Then we may see a correction. That's a market drop of ten percent. If we see a bear market, that means a drop of twenty percent or more. And a bear is always a possibility.

So, I've decided to get my financial house in order, to batten down the financial hatches so to speak. I'm using the intervening months to assemble a solid portfolio of resilient companies plus some decent ETFs to take my wife and me through the coming downturn and there will be a downturn. There always is. On the bright side, they don't tend to last long. Eight months would be normal and two years would be an exceedingly long lasting bear market.

I thought of going the Couch Potato route but for a number of reasons I have decided to borrow some Couch Potato ideas but not anywhere near all. You might feel differently. I highly advise checking out the Couch Potato. You could do much worse.

In my next post, I will talk about one of the sectors I am putting front and centre in my retirement portfolio: Utilities.

Posts temporarily down for editing.

I've taken my previous posts down for updating and editing. Since starting this blog, I've grown and my views have changed somewhat. It is time for a careful reboot.

Cheers!

iShares REM: Reverse Split

I was surprised today to see that my REM shares (iShares Mortgage Real Estate ETF) are now worth more than $40 (US). The last time I looked those shares could be bought for something in the neighbourhood of $10 (US). Why the jump? A reverse split.

A reverse split of 1-for-4 took effect before the market opened this past November 7, 2016. Each REM share was converted to one quarter of a (New) share in the popular iShares capped ETF. In other words, if you owned 800 old shares, you only own 200 new shares today.

Why the reverse split? I have no idea but with a new president-elect Donald Trump led government in the States, an increase in interest rates may be in the offing. If so, an ETF like REM, with its high 13%-plus dividend, will come under downward pressure. The new value gives REM room to fall. (No matter who was elected, rates will go up at some point. Of that, there is no doubt.)

If REM rallies next week, I may sell. When the dust settles, after the inauguration in early 2017, I may buy back in if the price is right.
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This post was taken down for examination. I have reposted it as of June 16, 2018. REM today is selling in the mid forties and yielding better than 12%. I should have held my ground. Selling REM was a mistake.

If and when REM drops back down into the thirties, I will give it serious consideration. Rates have started climbing and two more hikes are expected before the end of the year. There may be a buying opportunity in the future.

Remember I am not a financial adviser. I am a retired photojournalist. I post my thoughts on investing for a number of reasons. One big driver is a hope that I will get some feedback. I am out to learn from others and I hope my writing will promote discussion. 

REM may have farther to fall

I like REM. I take some of the income and reinvest it with caution. The remaining income I spend. I'm retired. I need money to live. (REM, if you don't know, is a U.S. mortgage REIT from iShares.)

I didn't pay too much for REM, I paid in the $12 range, and my wife paid even less. Even with today's low unit prices, my wife is in the black with her REM investment. Many investors cannot say the same. Some investors paid more than four times today's unit price just a few years ago.

The saying "a rising tide raises all boats" doesn't seem to hold for REM. As the market booms, REM has been sinking.

With the Federal Reserve stopping their quantitative easing program of buying bonds, interest rates should start to climb. This will impact adversely on both the bond market and the mREITs sector. REM may be in for another kicking. I have a chunk of my portfolio in various REITs but I didn't buy at the peak of the market. I have a cushion.

Still, one has to wonder how much damage raising rates will inflict on my portfolio. I have begun considering buying on dips and selling on little pops to make a little money in what I believe will be a falling market where REM shares are concerned.

Whatever I do, I will keep my overall exposure to this sector manageable. Don't risk what you can't afford to lose, I like to say.
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This post was take down for evaluation: it passed. I re-posted it in mid-June 2018. REM proved to be a good investment. I eventually sold but, in retrospect, I am sorry I did.

Thoughts on REM

The iShares Mortgage Real Estate Capped Fund or REM was originally a $50 U.S. ETF. It didn't hold that lofty value long. It almost immediately began a slow and steady descent to the fifteen dollar level.

At the worst of the market crash, REM approached $10 U.S. but failed to break that barrier. If you put your faith in past numbers, you might think REM is coasting along just off the the bottom. Today, it is selling in the $11.50 U.S. range.

REM is composed of a number of companies in the mREIT business in the States. I have simplified the business model to the extreme when I say that money is borrowed at one interest rate and lent out at a higher one. The spread is the profit. These mREITs move massive amounts of profit straight to the investors' pockets.

Today REM is paying a dividend of better than 16 percent. This worries me. This payment falls into the "too-good-to-be-true" camp. Still I have owned REM for some time now, I was lucky and bought my shares of REM near the bottom. It has proven to be a wonderful addition to my portfolio.

I bought about 800 shares of REM yesterday at $11.50 U.S. and added this to my previous holdings. Will I buy more? Maybe. But unless it drops below $10 or I read something incredibly positive that I trust, I probably won't.

REM is a strong spice in my portfolio. It gives my income a much needed kick. Or, you might say REM is the high risk but high reward end of my barbell investment strategy. I've looked at the major players who make up the bulk of the REM holdings. All these mREITs ar fair to excellent investments on their own. Not a one appeared to be a poor choice.

Often ETFs have a few holdings one might consider dogs. I have a few ETFs like that. REM does not appear to fall into this trap, although there might be some small holdings of which I am unaware.

Today, holding REM makes my life easier. It provides me with much needed income in retirement. And in the small amount that I hold, it does not give me pause to worry. I can handle the loss if it should come. C'est la vie.

I wrote a follow up to this, REM might have further to fall, in Jan. 2014.