Today I read a report from Morningstar. It was rather positive. I decided the market over-reacted, not uncommon, I picked up 200 shares at what felt like an almost bargain basement price. With an annual dividend of $3.72, my income jumped $744 a year with the purchase.
I paid the down-payment on my first home with money raised by selling Bell stock. Years later I sold my shares in Apple computer and Britoil to meet financial demands.
Owning stock has been a good to me.
When I took an early retirement, I took all the money I was given and put it into the stock market. I didn't just pick a stock or two, cross my fingers and invest. I followed the rules. For instance, one rule insists one must be diversified. Never put all of one's eggs into one basket, so to speak.
Why is diversification so important? Because one cannot see the future. No one has a crystal ball. If you don't believe me, check out the stock-picking histories of some major players in the stock analyst game. Very few get close to 70% right. Some analysts manage to get into the 60s but many more are in the 50s. At this point, one can do as well flipping a coin.
Diversification works but it should not be asked to work alone. Team it with other rules such as "buy quality." Stock prices do not just climb. Stocks also suffer price collapses. Buying quality helps to lessen the chance a portfolio will go down for the count. Quality rebounds.
One diversifies by investing in a mix of stocks and investments. I like to aim for about 25 to 30 different investments. These are mostly individual stocks but I also add a few ETFs to the mix. For instance, picking an individual REIT is exceedingly difficult. Buying an ETF like RIF or ZRE solves the problem.
Adding U.S. and international stocks to one's portfolio is another way of adding diversity. I like XUS, the iShares S&P 500 Index ETF. With XUS you gain exposure to the 500 largest publicly traded U.S. companies. For international exposure, I like VIDY, the Vanguard FTSE Developed ex North America High Dividend Yield Index ETF. This gives one exposure to a raft of international companies that all share one characteristic: all offer high dividend yields.
Of course, one should not invest too much in just one or two sectors. As I said earlier, I invest in banks, utilities, real estate, energy companies, telcoms, U.S. and international stocks and more. A chunk of my portfolio is always invested in cash. I keep the cash in a money market fund, TDB8150, which pays 4.55% today.
Another good rule is do not try to time the market. You may find this difficult, if not impossible, but it means if you believe a stock is a great buy then buy it. If you put off the purchase while waiting for the stock price to drop, you may miss the buying opportunity completely. This has happened to me more times that I care to admit.
Do not put too much into one investment, especially into one stock. Many believe five to ten percent should be one's outside limit. Why? Think of Nortel. If this name does not set off alarms, click the link: Nortel. I worked with a fellow who shortly before retiring got caught in the Nortel crash. He tried to average down as the Nortel stock tanked. Nortel stock never recovered and it took a great deal of my friend's savings with it. All too sad.
Don't use money to invest that you cannot afford to either lose or to tie up for an indefinite period. If you bought quality, if your investment pays a good dividend, you will be paid to hold and hold and hold. I have often held stocks for very long periods while the stock slowly recovered in value.
Right now, today, Algonquin Power is in this category. I believe the financial blood bath has stopped, AQN dropped in value by more than half. Ouch! Today it is well off its historic lows and will slowly recover in value. AQN pays more than 5.25%. If the yield is calculated on my original investment, I am still enjoying an almost 4% yield. Yes, I can afford to be patient.
My last thoughts on this topic are that you should make sure your portfolio, your investment mix, is in tune with your temperament. One must sleep at night. Whatever you do, make sure you are comfortable with your investment decisions, that you can live, and live comfortably, with whatever you decide.
For instance, I have about four percent of my retirement income portfolio in TC Energy (TRP). TRP is out of favour with investors today. It is threatening to split into two companies and the market is not happy with the decision. I don't see a Nortel-like demise in TC Energy's future. But no matter, I am not overly concerned as I am not overly exposed.
If you own TC Energy, I do, today was not a good day. TC Energy (TRP) announced it was splitting into two companies by spinning off its liquids pipelines business. When the market opened, the stock took a dive. Markets do not like surprises and this was a surprise, a big surprise.
BNN reports, "Under the proposed transaction, TC Energy shareholders will retain their current ownership in TC Energy’s common shares and receive a pro-rata allocation of common shares in the new liquids pipelines company. The number of common shares in the new company to be distributed to TC Energy shareholders will be determined prior to the closing of the split."
The company had pledged to sell C$5 billion of assets. A goal that was achieved earlier this week with the agreement to sell a 40% stake in two US natural gas pipeline networks for C$5.2 billion in cash. This sounds good but it may fall short of what TC Energy paid for the Columbia systems just seven years ago in 2016.
The Globe and Mail reports, "The good news for TC Energy is that more than 90 per cent of its cash flows come from regulated assets and long-term contracts, so it has reliable revenues ahead." The bad news is that TC Energy can no longer be said to be a buy. TRP is now a hold -- solid hold.
It will be interesting to see how Morningstar reacts as TC Energy has just recently been upgraded to a core holding in a number of Morningstar-designed portfolios. Mere weeks ago the Core Pick List reported, "For July’s Pick list, our model recommended the addition of TC Energy TRP . . . " The Canadian Income Pick List called TC Energy (TRP) a top performer with total returns of 3.1%.
Stay tuned. TC Energy has flipped into the Hold category: a surprise.
I have lost more than 8% of my investment, at least that is my paper loss. I feel a little guilty. I told folk that TRP was a buy -- and it was. But it does not feel like it was such a great buy at this moment. Ouch!
I can handle the loss. I'd rather not but investing is not without danger. One cannot time the market, as they say. Still, it is impossible not to want to try. I was trying when I bought at $52.50 and I was wrong.
I worry that a close relative, who bought some TRP, will not have the stomach for this loss and will bail out. I hope not. TRP will recover. It may not hit its target in the near future but it will certainly recover its recent 8% or so loss. My spreadsheet calculates that TRP is deep into bear market territory. It is 33.76% off its high of the past year.
But, if the TRP price should continue to collapse, I'd be a buyer at $45. With a dividend pushing 8%, TRP is a core holding in my retirement income portfolio. TRP is going to reward patience. Buy and hold is the correct move here, even though holding may prove more difficult that most non investor would think.
I figure the old advice of holding as much as 20% of one's retirement portfolio in REITs may be on the generous side. But holding nothing in REITs may be a little extreme in the other direction. My goal today is to have 10% in REITs in the form of a couple of ETFs. At the moment I am falling a little short of my goal but not by all that much. Always keep in mind that office REITs make up only a faction of the ETF holdings. Apartment REITs are a big component, as well.
The main REIT ETFs in Canada are all quite similar. That said, I like RIT as my main holding. Unlike the other three REIT ETFs I am going to mention, RIT has some exposure to the U.S. REIT market. This adds a little extra diversity to the RIT holdings.
ZRE and XRE are my next picks after RIT with ZRE getting a the nod. I hold both RIT and ZRE. At the bottom of my list but not that far off the pace is VRE. Why is it at the bottom. Its yield is at the bottom and that fact alone drags it down in my book.
I checked the Morningstar ratings for the four ETFs mentioned and RIT got four stars, ZRE and XRE got three stars and VRE got only two stars. It is always nice when the financial experts at Morningstar appear to agree.
Click the link and read what Ryan Bushell said about TC Energy (TRP) and Emera (EMA) when he appeared on BNN recently. I rate these two stocks very highly. I have both in my retirement income portfolio. TRP has an amazing dividend and it looks solid while EMA is one of the largest utilities in Canada. It offers a very good dividend along with a very low Beta. Both are fine holdings.
I based my imaginary retirement portfolio on the lessons that I have learned since retiring some 14 years ago. As I don't get a lot of hits, I will leave you to click the link and check out my posted portfolio. If I get a few comments and questions, I will return and complete this post. I will, of course, answer your questions, if any. Until then, have a good day and wishing you good luck with your investing.
This add was made on December 24th. My imaginary retirement portfolio fell on tough times shortly after it hit $50 thousand plus in gains. It fell tens of thousands in the red. Today, in December, it is up a bit more than $30,000 while it has pumped out $3,333.33 per month in dividend cash to cover living expenses.
Look for an early January post bringing my readers completely up-to-date on how this portfolio is performing. The link below will take you to the original post creating the retirement portfolio.
