Experts do not always deliver

 

Do you wonder whether or not you have the knowledge to manage your own portfolio? Lots of folk worry that they cannot do as well as an expert. Oh? Check the results achieved by a dozen or more so-called financial investment experts. Finding one with a Win-Loss Rate of 70% or better is difficult. Many do not even break even. And many have downright embarrassing average rates of return.

I cropped out the expert's name in the example shown. I took pity on the advisor. Heck, results like this send one running for an ETF like Vanguards VDY. VDY was $40.07 at market close Friday and the five star fund according to Morningstar was yielding 4.67%.

Put 5% in each of the following: RY, TD, FTS, EMA, BCE, T, ENB, TRP and 10% in both VFV and RIT plus 40% in VDY. If you had a $400,000 to invest in a retirement income portfolio, this mix would yield $18,896 annually or $1575 each month. 

If you need more income, weight your portfolio toward the higher yielding stocks. If you need more security, as long as cash deposits are yielding more than 4%, like they are right now, shift some of your portfolio money into cash.

Note that the do-it-yourself, simple portfolio gave you some exposure to the American market while VDY, despite its fine yield, does not give any exposure to investments outside Canada. You can put all your money into VDY and call it quits but if you find that satisfying, possibly you should consider a complete portfolio in one ETF like VEQT which is yielding 3.61% today. If that yield is inadequate, pump up the yield by mixing in a little ZWA. This is the BMO Covered Call Dow Jones Industrial Average Hedged to Cdn. ETF. It yields 6.82% today.

There are lots of options beside hiring an advisor. Good luck!

Is it time to invest in TD?

Four years ago Global Finance rated the world's safest banks. Search the article for a mention of Credit Suisse or Silicone Valley Bank; you will come up blank. I find this reassuring. 

Now, do a search for TD Bank or Royal Bank. Royal is in the 12th position and TD follows. Both carried very high ratings from Fitch, Moody's and S&P at the time this article was written. Both still carry these high ratings today.

At the close Friday, TD finished at $77.90. Investors taking advantage of that low price were rewarded with a yield of just more than 4.9%. Note: Canada's biggest banks as a group have a history of never cutting, or even reducing, their dividends. That TD yield is safe.

A retiree investing $50,000 in TD Friday could count on an annual income of $2464.50. He or she might watch that investment shrink over the coming days but the yield should be safe. Why might the TD stock price continue to spiral downward? Herd mentality. The herd is skitterish when it comes to banks, especially smaller U.S. banks, and TD is tainted by its connection to First Horizon Corp.

BNN reports, "First Horizon Corp. fell by the most since September 2008 as the crisis in regional banks cast doubt on whether Toronto-Dominion Bank will follow through with its planned US$13.4 billion takeover of the lender."

The BNN article continues, "First Horizon declined as much as 33 per cent Monday morning and (trading) was briefly halted due to volatility. The stock pared losses but still ended the day down 20 per cent at US$16.04. That’s about 36 per cent below TD’s takeover offer."

There are two rules guiding stock buying that seem to be in conflict at times. The one rule says do not try to time the market. The other rule is do not catch a falling knife. TD is down 25% from its high of the past year. TD stock is well into bear territory. The other day, I bought a few hundred shares. I decided to not try and time the market. I'll accept some short term loss.

Adding to the complexity of the situation, TD owns about 10% of Charles Schwab. Today, Schwab stock price has descended well into bear market number territory thanks to all the unease in the U.S. financial sector. TD is left tainted yet again.

If the TD descent should continue too long, if it should become clear that I caught a falling knife, I will look to a third stock buying rule: average down in a declining market. I will consider buying more TD stock. I might even go overweight financials with the goal of selling the extra for a capital gain realized inside an RRIF. The present TD target price forecasts a capital gain of about 25%.

For the moment, I am taking heart in the headline in the March 18th Globe and Mail. It called TD stock among the top 10 undervalued large cap stocks on the TSX.

 

Addendum:

One last thought. There are financial experts forecasting a recession in the not too distant future. If a recession should materialize, all stocks will lose value. The applicable rule here is not from the financial world but from The Hitchhiker's Guide to the Galaxy: Don't panic!

AQN holding up well in the recent roar of the bear

The SVB disaster has brought the global market down. It is a crash that is affecting almost every single stock. What I find interesting is that TD bank is down a full two percent while AQN (Algonquin Power) is down only about half of that. ENB (Enbridge) is down more than double what the TD Bank is down.

TD and ENB are stocks that everyone loves. AQN is out of favour. Yet, it is AQN that is showing some resistance to crashing in value in lock-step with the market. This tells me that AQN has reached a floor and is no longer in anything near the free-fall it suffered recently.

If one is holding AQN, this might not be a bad position today. Sadly, many of us lost a lot of money to reach this "good" position. Selling today might offer only another downside event; we would be locking in our losses.

Some last thoughts on a retirement portfolio

I retired more than a decade ago. I was lucky. When I left my job of some 35 years, the market was in the grip of a big bear. I was able to buy cheap. A lot of the stocks I discuss in my posts on building a retirement portfolio are among the stock that I bought at the time.

In a bear market, Canadian banks easily deliver more than four percent, many more than five percent and if the bear is truly nasty, some banks will deliver more than six percent. Since traditionally one tries to withdraw no more than four percent annually, generous yields like the above are very important. 

Some folks resist investing in pipelines. Don't ignore the pipelines. Many pipelines, like ENB and TRP, yield more than six percent and sometimes more than seven. Not only are these yields amazingly high but they can be trusted.

As I write this, March 7th, 2023, there is a lot of talk about a strengthening bear market. I'm smiling and you should be too. Bear markets are good for retirees. We get to buy low and collect wonderfully high yields.

One caveat, don't put money in the market that you cannot afford to have tied up for a long time. You want to enjoy the yield, you want to live on the yield, you do not want to find yourself in a financial squeeze that forces you to sell low. Losing money is not part of the game plan.

Until you sell, you haven't locked in your loss. I bought Algonquin Power for something in the neighbourhood of $15. It then dropped to less than $9. Ouch! Since then, it has climbed to almost $11. I am sure that someday, it will hit $15 again. I am not worried in the least. The dividend was cut by 40% but AQN is still yielding about 5.5%.

If you want some good professional investment advice, find the latest advice from Morningstar. You cannot go far wrong buying the Morningstar Income Portfolio or the Morningstar Core Portfolio holdings. My portfolio often overlaps the Morningstar portfolios but I confess to weighting my holding towards the high yielding stocks.

Good luck investing!

Core holdings in a retirement portfolio (in my opinion)

Recently I did a post on stocks I consider core holdings in a retirement portfolio. Click the link to read the post: LINK. A few days later, I added some more stocks. Today, I'm adding an ETF to my suggested holdings.

At the moment we have: 

Financials

• RY (Royal Bank)       
  
• BMO (Bank of Montreal)
  
• TD (Toronto Dominion Bank)
  
• CM (Canadian Imperial Bank of Commerce)
  
• BNS (Bank of Nova Scotia)

Utilities

• FTS (Fortis)
  
• EMA (Emera)
  
• H (Hydro One)
  
• CU (Canadian Utilities)
• ALA (Alta Gas) 
  

Telcoms

• T (Telus)
• BCE (Bell)
• QBC.B (Quebecor) (Best bought on dips.)
  
• CCA (Cogeco) (Only buy on dips) I shifted from CCA over to CGO.
  

Pipelines

• ENB (Enbridge)
• TRP (TC Energy)
• PPL (Pembina)

I believe that every Canadian retirement portfolio benefits from the inclusion of a good percentage of REITS. The well known and highly respected late David Swensen, google him, get his book, advised holding something in the order of 15% of one's retirement portfolio in real estate. 

I like the ETF RIT to fill this need. A managed fund and not an index ETF, the MER is a little higher that most. RIT has some of its holdings in the U.S. unlike the other ETFs that hold only Canadian REITs. This is a nice plus and in many years this plus is reflected in superior results. I try to add to my holdings on dips. RIT is yielding 4.6% as I write. Nice.

Real Estate (REITs)

• RIT (CI Canadian REIT ETF)
  

I have some exposure to the U.S. market in my portfolio. For this, I like XUS. For exposure to the markets outside North America, I like VIDY but there are other good choices. Do not let my choices hem you in.

Core retirement portfolio holdings

Recently I did a post on those stocks I consider core holdings in a retirement portfolio. Click the link to read the post: LINK. Today, I'd like to add some more stocks in the core holding category.

At the moment we have:

Financials

• RY (Royal Bank)       
  
• BMO (Bank of Montreal)
  
• TD (Toronto Dominion Bank)
  
• CM (Canadian Imperial Bank of Commerce)
  
• BNS (Bank of Nova Scotia)

Utilities

• FTS (Fortis)
  
• EMA (Emera)
  
• H (Hydro One)
  
• CU (Canadian Utilities)
• ALA (Alta Gas) 
  

Telcoms

• T (Telus)
• BCE (Bell)
• QBC.B (Quebecor) (Best bought on dips.)
  
• CCA (Cogeco) (Only buy on dips) I shifted from CGO to CCA. I did not want the radio ownership.
  

Pipelines

• ENB (Enbridge)
• TRP (TC Energy)
• PPL (Pembina)

Our retirement portfolio now has 15 buy and hold investments. If you had and average of $35,000 in each stock, your total portfolio would be worth $525,000 and would be yielding $22,000 or more in its first year. No one would be surprised if the yield increased by three or four percent annually in the coming years. In other words, I fully expect the income generated by this portfolio to increase by approximately $800 in the second year.

Are you beginning to understand why I balk at the idea of adding an annuity to my retirement package?

In my next post, I will touch on other investments I see as important investments in a well designed retirement portfolio. For instance, you may have noticed the exposure to the U.S. market is totally inadequate at this moment. This can be corrected by adding an ETF like XUS or VUS. Stay tuned. We'll compete this thought soon.

Algonquin Power Utilities Corp may have found a bottom

 

For investors in Algonquin Power Utilities Corp the last few months have been difficult. The stock is some fifty percent off its recent highs. The question being asked is this: "Is it time to sell? Is it time to save what is left and move on?"

This is a tough call. Investors had confidence in AQN and that confidence was misplaced. If we have confidence in AQN today, is that confidence again misplaced? My gut feeling is no, it's not. AQN will not drop a further fifty percent from its present price. The days of massive losses are over. AQN stock may go down but it will do so in lock-step with a falling market. AQN will not lead the retreat.

Look at the screen grab posted at the top of this post. Note that four absolutely superb stocks were all down at the open this morning. AQN balked. AQN was actually up almost a full percent. I don't find this apparent strength surprising. AQN is testing a bottom. I feel confident continuing to hold AQN.

AQN slashed its dividend. The pain of that cut is reflected in the present stock price. I don't see another big cut in the near future. And so the correct question is: "If I sell my AQN, where can I invest the money and get the same or better dividend income. What investment is offering better potential for a decent capital gain?" I have no quick, easy answer and so I continue holding AQN.

In the mid-afternoon, I checked the gain/loss of AQN again. Wow! It was up more than two percent while everything else remained down. AQN is clearly testing a possible bottom.