Fisher Investments Canada 15-Minute Retirement Plan

CLOSED - CLOSED - CLOSED - CLOSED

On Sat., July 31th, my Million Dollar Portfolio DEMO sat at $1,237,441. This is after making PAPER monthly withdrawals totalling $29,970. $3,330 was withdrawn monthly to cover living expenses in retirement.

 

The screen grab below shows the balance as of Saturday, June 26th.

Fisher Investments Canada sent me its 15-Minute Retirement Plan. It was a very informative brochure. The well respected investment management firm examined various investment and withdrawal strategies appropriate for retired seniors. 

I was surprised the strategy I am using was not among those that Fisher examined. Why the surprise? A fellow at TD told me that he had other clients using the same withdrawal approach. He considered my approach a reasonable withdrawal strategy for a RRIF holder.

My strategy? I meet the mandatory withdrawal rules by transferring investments in-kind from my RIFs and LIF into TFSAs and non-registered accounts. I never sell equities or ETFs to meet the annual mandatory withdrawal requirements. As these in-kind transfers are made to cover mandatory withdrawal demands, there is no immediate withholding tax. But note, the tax must be paid the following year. 

To cover living expenses in retirement, I withdraw dividend income. I have 30% withheld on these cash withdrawals. By making these tax payments quite generous, the withdrawals essentially cover the future income tax due on both the cash withdrawals and in-kind transfers.

I have used this RIF and LIF withdrawal approach with success for over a dozen years in retirement.

Fisher Investments Canada warns, "One of the biggest risks an investor faces is running out of money in retirement." I agree. As the Fisher brochure points out, someone who is 65 years old can reasonably expect to hit 85. A 65-year-old must plan for the retirement portfolio to last two full decades. More would be nice. Fisher Investments Canada is offering some good advice here. No argument.

Fisher looked at five scenarios but I was interested in only one. The first two scenarios were too generous as Fisher itself pointed out. Fisher calculated that if one withdraws 10% annually, or even just 7% annually, the money will not last. The third scenario used a 5% withdrawal rate but even at 5% the Fisher portfolio could be depleted before the passing of two decades.

For a safe withdrawal rate, Fisher Investments Canada seems to be recommending 3%. With a million dollar portfolio at retirement that would mean one is only allowed a withdrawal of $30,000 a year. I could not get by on such an amount and I don't. And I don't have a million dollar portfolio either.

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Here, I am inserting my latest feelings on the 3% withdrawal rate recommended by Fisher Investments Canada. The percent one can withdraw, before one must sell some equities, varies. If one is lucky enough to buy when the market is down, removing 4% or more may be quite reasonable. If the market is roaring to new highs with equities fully valued and then some, even a 3% withdrawal rate can be tough to achieve if one is just entering the market.

When I retired, my dividend paying investments were, for the most part, all yielding well above 4%. After more than a dozen years in retirement, my portfolio has grown and although the income has also grown in absolute numbers, my dividend income has not grown enough to maintain the 4% yield. My yield today is 3.3%

Does this mean it impossible to design a portfolio today to support a 4% withdrawal rate? It may be harder but it is not impossible. The telecoms are still paying better than 4%. Telus yields 4.07%, BCE yields 5.39%. Pipelines are another place to find yield. Enbridge yields 6.14% and TC Energy yields 5.3%. The REITS are another good source for yield. I like two ETFs: XRE and RIT. Both yield more than 4% today. A few Canadian banks are still yielding more than 4%. CIBC delivers 4.53%. Some utilities also meet out 4% yield requirement. For instance, Emera is yielding 4.27% today. Toss in an ETF like XUS for some exposure to the American market and you might have a workable portfolio.

Companies like Fisher seem to know their stuff. No argument. Still, I am happy not paying a financial advisor. My gut tells me the cost of a financial advisor would be a big burden on my retirement portfolio. Only time will tell.

 And now to return to my original post . . .

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I decided to try my hand at investing a million dollars with the goal of growing the portfolio while simultaneously providing income throughout the retirement years. I created a demo portfolio using TD WebBroker software. I took two cracks at doing this with the second attempt using a more diverse selection of stocks. I looked carefully at my own holdings to create my posted Million Dollar Portfolio. I tracked this demo portfolio for more than a year before software glitches caused me to stop.

My Million Dollar Portfolio had no bonds. Interest rates were simply too low. I didn't have bonds in my personal portfolio and I didn't miss them. My personal retirement portfolio is a mix of stocks and ETFs and it is larger today than when I retired eleven years ago. This is despite my having withdrawn cash every year to cover living expense in retirement. 

To clarify what I wrote earlier, I withdrew all the dividend income up to a maximum of 4%. I also met my mandatory withdrawals from my RIFs and LIFs by making in-kind withdrawals with the transfers going to either a TFSA or a non-registered self-directed account. Because these are mandatory withdrawals, no tax is withheld but the tax must still be paid in the following year.

The goal of making these in-kind withdrawals/transfers is to deplete the RIFs and RLIFs while retaining all the investments: equities and ETFs.

Up until recently, my portfolio had no problem delivering more than 4% in annual dividend income Not today. A $50 stock that a few years ago which was paying a $3 annual dividend for a yield of 6% is today selling for $100. The $3 dividend now yields 3%. The dividend income remained constant in dollars but as yield expressed as a percentage it shrunk.

Thus far, this constant dollar income has not caused me any problems. For one thing, because I transfer so much to my TFSA annually, I have an annually increasing tax-free income. The same income goes farther and farther with each passing year. 

Both Telus and BCE have announced dividend increases and Fortis is likely to up its dividend. These little bumps in dividend income help when it comes to income in retirement but these do not neutralize the effect skyrocketing equities values have on my portfolio.

I was able to validate some of Fisher's claims. It may be true that slavishly withdrawing a full 4% annually from a retirement portfolio could threaten its very existence over time. I prefer to focus on the amount to be withdrawn from the portfolio.

I retired in 2009. Today I withdraw more money from my portfolio than I did when I retired but the percentage number has shrunk. Yes, that's right. My withdrawal in dollars has climbed while the percentage withdrawn has slid.

Now, without further adieu, a drum roll please, I present my Million Dollar portfolio with the annual yields expected as it existed in June 2021.

• 1940 shares ALA. Annual yield: $1862.40
• 410 shares BMO. Annual yield: $1738.40
  
• 150 shares BNS. Annual yield: $540
• 810 shares BCE. Annual yield: $2835
• 330 shares CM. Annual yield: $1927.20
  
• 615 shares EMA. Annual yield: $1568.25
  
• 925 shares ENB. Annual yield: $2997
  
• 620 shares FTS. Annual yield: $1252.40
• 1135 shares H. Annual yield: $1146.35
  
• 275 shares IGM. Annual yield: $618.75
• 500 shares NA. Annual yield: $1420
• 640 shares NTR. Annual yield: $1540
• 350 shares RY. Annual yield: $1512
• 655 shares TRP. Annual yield: $2122.20
• 1420 shares T. Annual yield: $1661.40
  
• 565 shares TD. Annual yield: $1785.40
  
• 2400 shares ZDJ. Annual yield: $2112
• 1000 shares ZPAY. Annual yield: $1920
  
• 3870 shares XUS. Annual yield: $3908.70
  
• 2500 shares VIU. Annual yield: $1600

• Plus there's more than $90,000 in cash. It's good to have some cash for unseen disasters.
• Anticipated Annual Dividend Income: $36,067.45. (Yield is 3.6% on original million dollars.)

Thanks to the cash balance, when I must, I can withdraw close to the 4% amount.

Let me point out that as funds are transferred to the TFSA, more and more future withdrawals become tax free income. A nice perk. When the in-kind withdrawals must go into a non-registered portfolio, the withdrawals will be taxed but as dividend income from Canadian companies. There may be some tax benefits.

Warning: One must be prepared for volatility. A correction is a fall value of 10% or more. A bear market kicks in when the market drops 20% or more in value. Corrections and bear markets are expected. Relax. You're an investor and not a speculator or gambler. You realize money is only lost when one sells. Your goal is to live on the dividends.

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If you've gotten this far, here's a financial advisor site that seems to offer a lot: Bellwether Investment Management. I liked the retirement calculator. And for another view on retirement, an absolutely excellent book is Retirement Income for Life by Frederick Vettese. He was the Chief Actuary at Morneau Shepell. His approach is different than mine but, unlike Fisher, he also sees four or even five percent withdrawals as possible.

I like Vettese and I may modify my own retirement plans based on his views. His argument for buying an annuity at some point, no later than the age of 80, is very persuasive.

Self-directed investing with TFSAs or RRSPs

I'm not familiar with all the options for running a self-directed investment account. I know many banks charge an annual fee that can be as much as $100 annually. 

But once the portfolio value exceeds $25,000, the annual fee is often waived. This cutoff point is not etched in stone. Pay close attention to the fee schedule when pricing out all the costs

For instance, CIBC Investor's Edge self-directed TFSA and RESP accounts have no annual administrative fee. Investor's Edge also charges $3 less than many others for each online equity trade. That may not a lot but the $3 is better in your pocket than the bank's.

I understand Questrade charges no annual administrative fee for RRSP and TFSA accounts. Familiarize yourself with the rules governing TFSAs and RRSPs. As a new investor, you may find opening a TFSA is your best option. 

The last time I checked, one could contribute up to $6000 annually to one's TFSA but there is a possibility that you can contribute much more. Read what the Motley Fool said in January of 2020:

Here’s the catch: the annual TFSA contribution limit may not apply to you. That’s because the lifetime TFSA contribution is the number that really matters.

Unused contribution room rolls over from year to year. So if you didn’t max out your contributions in past years, that room is added to this year’s maximum.

For example, if you started a TFSA today and had yet to make a single contribution, you could potentially contribute $69,500, the sum of each year’s contribution maximum since the TFSA was first launched.

So, if your finances allow, make sure to hit the 2020 contribution maximum of $6,000. But if you left contribution room in past years, you may be able to contribute even more.

The other option is an RRSP. Funds contributed to an RRSP are not subject to income tax. The tax is not waived forever but only put on hold until the funds are withdrawn. If withdrawn in retirement, your tax rate may well be lower than that paid during your working years.

When retired, you may find you need three portfolios: an RRSP, converted to an RIF at 71, plus both a TFSA and a non-registered account. I can envision situations where this could be advantageous for younger investors as well.

To recap:

• Maintain a personal budget to know the state of your finances
• Open either a TFSA or an RRSP
• Manage your saved funds with a self-directed investment account. Use the lowest-cost provider. This may be CIBC or  Questrade.

If you don't know how to check your TFSA contribution room, Wealthsimple has a clear explanation. The entire article is worth a look but here is the core of their advice.

1. Go to the CRA My Account login

2. Log in with your preferred method. If you've set up your bank as a sign-in partner, this is the simplest way to access your CRA account.

3. Under the tabbed header, navigate to "RRSP and TFSA"

4. Click "Tax-Free Savings Account (TFSA)"

5. Click "Contribution Room"

6. Click "Next" at the disclaimer

7. I understand this value does not reflect any contributions or withdrawals made in the present year.

Interested in investing? First, understand your finances.

A close friend told me they want to invest in the stock market. Why? They hope to retire at fifty. I'm concerned. The stock market is not a get-rich-quick scheme. If it were, we would all be rich. On the other hand, the market may treat reasonable investors very generously. We cannot all be like Warren Buffets but we can all be like me.

The first thing any would-be investor must do is get their present financial life in order. To this end, I advise a spreadsheet. Many of us have computers preloaded with Excel, the excellent Microsoft spreadsheet.

That said, I use the LibreOffice spreadsheet. My copy of Excel expired and Microsoft asked for a lump of cash for renewal. I moved to LibreOffice and sent the Europeans a donation in support of the open source movement.

 

You can design your own budget spreadsheet or you can use a downloaded spreadsheet template.  All spreadsheets require a little tweeking. 

To find a budget template, search the LibreOffice Extensions or check out the Vertex42 offerings. McAfee checked the Vertex42 site, determining that Vertex42 is a good company posting threat-free software. McAfee gave the site their SECURE certificate.

Here is a link to the Vertex Personal Budget Spreadsheet shown on the right. Remember all spreadsheets can use a little tweeking. It isn't difficult. If I run into a problem, I run with the problem to Google and it quickly delivers a solution.

What is risk? And do bonds lessen risk?

If you try talking to bank reps about investing for the long haul, creating a portfolio that will provide adequate income while not being too risky, the bank rep will immediately launch into a discussion of buying bonds to lowering risk. Huh?

Let's say you have $100,000 at retirement and you were to need $6000 annually to balance your books. What do you do. Back in March,  I told a friend who had this exact problem to buy the top five Canadian banks in equal amounts. At the time do this would have provided a yield greater than 7%.

If one did this, one could remove $500 a month for 20 years while increasing the amount removed by the rate of inflation. I used 2% as the annual inflation rate and at the end of the 20 years I calculated that you would still have a balance of $90,189.79. It would take until the 15th year before the portfolio balance dropped below the original balance value of $100,000.

To assume that during those 15 years the five banks would never increase their dividends is crazy. Most likely the dividends would slowly climb and your withdrawal would never reach the point of decreasing the balance. At the end of 20 years you would still have your complete balance, quite likely more.

Two concerns must be addressed:

Is it possible the dividend income will be cut? Possible? Yes, but unlikely. There is some risk but very little. If there is a dividend cut, chances are only one bank will be involved. Remember, the Bank of Montreal has gone almost 200 years without cutting its dividend. The top five Canadian banks prefer to issue more equity rather than reducing the dividend yield.

Is it likely the value of the bank stock will fall? Yes. That is probably not so much a risk as a given. But who cares? It is the dividend income that you need. The value of the stock itself is not the concern. And with a 20 year time frame, the chance is very, very slim that the bank stock will be worth less than when purchased.

Now, what happens when you buy bonds paying .95%? In your 15th year, the money runs out.

Oh, the interest paid by bonds may go up but no one knows when this will happen nor by how much the rate will climb.

Talk about risk. It seems to me the more bonds you buy, the more risk you assume. The world is a risky place. No investment is totally risk free but as you can see buying stocks may be as good a bet as one can make. If I'm wrong, I will let the bank reps have the last word. I doubt I'll hear from any.

Let me add, I have all my retirement funds in equities. I have done quite nicely over the past 11 years. If I'd have stayed with bonds, I would not be doing as well. Yet, the bank reps insist that I should own some bonds. Why?

I wish I had more of these stocks.

ALA: AltaGas

I have owned AltaGas off and on for sometime. Right now I own some and I'm glad I do. It is up 52% and it pays a damn fine dividend as well: 5.5%. It is in the $17 range today and many see it going as high as a $22. On the low end, its target is still higher than where it is selling today but not by even a buck. If the market pulls back, and it always does, I'm buying more.

 NTR: Nutrien

Another stock I like, and this one I own as much as I am willing to hold in my portfolio, is Nutrien. It is a Canada-based producer and distributor of potash, nitrogen and phosphate for agricultural, industrial and feed customers worldwide. Its dividend isn't all that great but at 4.8% it is enough to pay me to hold and wait. As I won't be needing my capital for years and so for me this as an almost risk-free investment.

Now, there are investments with which I wish I had less involvement. REITs for instance. But, I cannot time the market and I cannot tell the future. Unless all becomes very clear and without the requirement of a crystal ball, I will continue to hold my BPY.UN, XRE and ZRE and enjoy the dividends. BPY.UN is paying 11.5%, XRE 6.2% and ZRE 5.35%. If you are an investor, you have to learn to look on the bright side. Sometime, that can be hard. Practise! (That said, some would say accept the losses, cash out and run. If you wait, it will get worse. They might be right. We'll see. Come back in a couple of years.)

Luck has a big role in investing

I feel that I am still a newbie when it comes to investing. Oh, I hit a lot right but I feel I benefit more from luck more than smarts.

I got out of the market in March as although I agree that one cannot time the market, I believe one can time a fast approaching virus.

COVID-19 was a clear threat and I took cover. It was, for me, a no brainer. This decision was based on what I believed to have been common sense. And in retrospect, I appear to have been right. My portfolios are doing wonderfully.

Do I have any advice? Oh, I'd say, if you are a Canadian investor, check out the Morningstar Canadian Income Portfolio that is updated monthy on TD WebBroker. It has been the one source of advice that I have found to be of generally excellent quality. A lot of my portfolio falls in line with the Morningstar suggestions and most of my most successful stock buys can be found in the Morningstar portfolio.

Newspapers are poor sources for financial advise.

With the recent crash, newspapers dusted off the traditional horror story reporting that seniors who had foolishly put their retirement money in the market now faced financial ruin. It is not exactly a myth but it isn't the whole story either. A more complete story would report that folk frightened by what they have read in their daily paper or those who get their financial advice from the daily paper may well have invested unwisely.

Let's say you were a senior in early 2008 and you put all your retirement savings, $100,000, into the TD Monthly Income fund. It is a simple balanced fund investing primarily in Canadian stocks along with a conservative percentage devoted to bonds.

You needed that money to live in retirement and were going to remove $450 every month to balance your budget in retirement. And that money was coming out no matter what. You could not meet your expenses in retirement without it.

Unfortunately, the stock market crash of 2008 happened just days after you put all your money into the fund. Wham! And you were out tens of thousands of dollars. The daily paper told you what you already feared, "You are toast!"

Left numb by the loss you did what you always do when faced with an insurmountable problem, you did nothing. And you did the right thing. Look at the following chart.

Yes, you were able to remove $450 from your investment every month for almost a dozen years and your finances were looking quite good until covid-19 caused the market to crash. $450 a month is an annual 5.4% withdrawal rate. This is a lot more than the 4% that the newspapers often claim is your maximum rate of withdrawal.

Your goals was to live on an amount similar to what was being offered by an annuity but keeping the principal to pass on to the children. After ten years the annuity would continue to pay a weekly amount but there would be no benefit to the kids after the death of the annuitant. There were other benefits from going the mutual fund route, such as the surviving partner continues to draw the monthly income even after the death of the one whose savings was used to make the purchase.

With the market crashing, you noticed stories in the media warning retirees that they were now at risk of running out of money. Post Media carried a particularly worrisome story.

The media giant reported: For example, if a 75-year-old had $500,000 and was planning to live on this cash for 10 years at a rate of $50,000 annually, a 20 per cent drop in capital would reduce that annual income by $10,000 to $40,000.

Huh? Why? What is this fellow doing with his massive stash of cash? Is it simply hidden under his mattress? Suspicious, you crunched the numbers. You discovered that if the fellow put $500,000 in the TD Monthly Income fund just days before the historic  market crash of 2008 and then immediately started removing $50,000 annually, after 12 years of withdrawals he would have something like $67,556.25 today.

When the blue line, the TD Monthly Income line, ends there is still a balance of $67,556.25 remaining.

It must be said that some newspaper articles are better than other. The London Free Press carried an article that had some good advice. It was a little self serving as it was written by a financial advisor and spoke very highly of using these whiz kids to direct your investments. https://lfpress.com/opinion/columnists/thompson-dont-panic-and-overcome-covid-19-market-fears/wcm/f88ab65d-18a2-4960-9443-05ad73014278/

The biggest problem with newspapers is the editors may have no opinion on the subject and so publish what they feel are balanced articles but, in fact, they are running bunkum and truth and giving both the same weight. If the editors were more knowledgable, I'm sure they would make different decisions.

Is the worst over?

My portfolio is the purple line with the large dots. The other two lines are the U.S. and Canadian markets.

It is April 8th and the markets have closed. The worst is over for the moment. Oh, I fully expect there will be more dips to come but it is hard to believe we will revisit the incredibly deep recent low. The only thing louder than the roaring of the bear was the roaring of the media.

Surely, you read the stories  about the "massive losses" suffered by those retirees who foolishly were too exposed to the market. Their portfolios needed more bonds, more cash, with the goal of diluting the volatility of the market.

"One dividend that always pays out and increases with time is knowledge," I read in a BNN piece. I wanted to raise my hand. I know another: Canada's biggest banks. They promise to never cut their dividends. (Instead, the issue more equity.) But, as a retiree investor I don't care. All I care about is the dividend and it will not be touched. Why did the writer not have the knowledge to know this?

I have a friend who is preparing for retirement. He says he is going to start playing in the market. Gaining experience. He's put about $20,000 aside for this purpose. He's read he should not be in the market with money he is not prepared to lose.

What an awful attitude. But he is simply repeating the standard advice the experts are pushing on television and in print. Never, absolutely never, approach the market with the attitude that losing money is O.K. It's not.

Some smart journalists should sit down at a table, six-feet apart, and brain-storm the question: What are the words and phrases relating to investing that should be investigated and possibly redefined? For instance, a BNN story equated risk with investing. "Everyone should understand risk is inherent when it comes to investing."

Is this really true? The world is a risky place. Risk is the background noise of life. Put your money in a safe GIC and watch its buying power slowly drain away. Or put your money in a good stock. In a good company. Remember, you are investing not gambling. And also remember, bear markets do not last forever. Many investors had fully recovered from the effects of the 1929 crash in just four years and almost all were in the black by the sixth or seventh year.  (These are facts that are rarely mentioned.)

So, take on no risk and accept .6 of one percent on your savings. Or find some good companies that you believe can get through just about anything the world can throw at them and invest. I took the second path. And just see how my investments have done over the past few, short weeks. This portfolio earned 17.14%.

Heck, if I wanted, I could cash in my stocks, go to cash and remove 4% annually for the next four years. As it is, I will be taking a small part of my money off the table as the bull returns. I'm not greedy. Furthermore, I'll be ready to buy when the next dip or full correction occurs.

Let's start the brainstorming here. What terms should a good journalist investigate?
What is risk? (You might be surprised.)
What does the word growth mean when used as in growth stock, growth mutual fund, etc.?
Are bonds really necessary? They cut volatility but . . .
Is volatility always, or ever, bad?
Are corrections bad? . . . or good?
Are bear market worse? . . . or better?

There, you get the idea, make a comment. Go for it.

Now that IS crazy!

I'm in the market. I'm often told I am wrong to be in the market during retirement. Too much risk, they say. I've ignored the advice and done remarkably well. So, I thought what if I turn a spreadsheet loose on the problem.

Say I had invested $100,000 in the market. I divided the money among the top five Canadian banks. Why? Well, historically Canadian banks never cut their dividends and its dividends that I need. Then the market crashed leaving my portfolio valued at only $50,000.

This didn't happen immediately. It took a few months but when the dust settled I had only half my money left. Should I take my remaining retirement money and get out? Or should I leave it in?

Let's say it's going to take 10 years for my portfolio to recover. For simplicity sake we'll say my investment recovers five thousand a year for ten years. (I didn't really think this through as this meant that in the first year my investment would recover $5000 or ten percent of the remaining balance. In the last year, it would also recover $5000 but on a much smaller balance. Percentage wise my portfolio would be recovering more and more each year. Oh heck, let's accept that for the moment. After all, this is only a fast spreadsheet calculation.

So, leaving my $50,000 in the bank stock, it grows at a constant $5000 per year for ten years and pays a dividend of 9% or $4500 dollars at first paid as 1.5% quarterly. Why is the yield so high. Because the banks don't cut their dividends. The cash amount remains constant but the yield number grows as the value of the investment shrinks. And over the years, as the value of the portfolio approaches its original value, the dividend yield will be back to where it started: 4.5%.

In truth, it is hard to see a portfolio of five solid banks taking ten years to recover. Three years would be a long time. And it is hard to see the banks not raising their dividends once or twice over a ten year period.

Put your money into an annuity, lock it in, lock in the monthly payment and sit back and watch that payment shrink. It will have lost a goodly amount in ten years to encroaching inflation. Put the money in the market at the wrong time, watch it shrivel and then watch it spring back in the coming months or years. Your annual payments will increase with time and at the end of ten years you will be glad you kept you were in the market.

Is this crazy? Impossible. Not really. I retired in 2009, and against all the best advise of the business page journalists with whom I worked, I put all my money in the market. ALL my money. A lot of it I put in income trusts. I bought BTH.UN composed of the top one hundred income trusts in Canada. I enjoyed a ten percent dividend.

It was too good to be true. The government put an end to the income trust game. But BTH.UN held quality units and it was very well diversified. The dividends continued, the price climbed back to where I bought in and I exited with more than I had when I entered. I had only used four percent to live and the remainder I had reinvested.

I tried to tell my former journalist co-workers about BTH.UN. They were not interested. No story there.

It is now 2020. I've been retired for eleven full years. My pension is peanuts and I need my portfolio to live. I remove what the government demands from my RIF every year. This coming year I must remove 5.4%. I will and I won't. I cannot afford to deplete my capital that but I must -- sorta. I will move 5.4% of my holdings in-kind into my TFSA and my non-registered portfolio accounts. That money will not be taxed until next year. There's no tax in the year of withdrawal on the minimum withdrawal amount.

To live I remove the dividends that have accumulated, up to about four percent of my holdings. Presently, I am making more than five percent in dividends but my dividends may get cut in the coming months. (I can squeak by on a 3.75% yield.)

I retired eleven years ago with X amount of money. It was an amount far less than the financial advisors told me I should have. Buy annuities I was told. I put the money in the market. Today, after living on my savings for eleven years, and after the recent collapse, I have my original funds multiplied by 1.6.

I still read stuff that is wrong in the paper and I still try to tell the reporters there are other ways to look at the numbers. I am not just ignored but occasionally blocked (on Twitter). Now, that is crazy!

(This post has been re-edited to correct a whole slew of truly stupid math errors. I need an editor, badly. There were some editors at the newspaper who were, as they say, worth their weight in gold. Some of the folk working at your daily paper are absolutely brilliant.)

What to do now? (Buy quality on the dips!)

I heard from a friend with some money in the market. They said they had to make some decisions soon about what to do with their investments. I wish I could tell them but I can't. That decision is theirs to make. But, I can share how I approach this quandary that faces every investor now and then.

At this point, one can either sell and accept the loss or stay the course and remain invested. With individual stocks, selling can be the right thing to do. I once foolishly bought some Yellow Pages stock. I wisely bit the bullet, sold the stock, took the loss and moved on. Yellow Pages never did recover.

It is far more uncommon for the market to crash and burn and not rise from the ashes reborn within a few months or years at most. In fact, depending upon whom you believe, even the 1929 stock market crash offered wise investors the rare opportunity to buy stocks at bargain-basement prices.

Mark Hulbert, writing for "The New York Times," suggested that an investor could have fully recovered from the 1929 crash in four-and-one-half years. Here's a link to the full article, 1929 Stock Market Recovery, in Zacks.

I've been in the market off and on since I was a boy. I've only dodged the bullet twice in my life. During every other decline I've been caught. Trapped might be a better word. I held on, accepted the volatility. The market goes up and down. Period.

How long it has taken the stock market to recover in the past.

If you are convinced our world of finance is coming to an end, bale. If not, stay invested and buy more stock in good, solid companies on the dips.

Stock market crashes are not one-time unique events. Although the media always reports these as one-time horrors. Google it. You'll learn that retirees are regularly losing everything in the market.

I'm a retiree. I'm in the market. Why am I in the market? I need the income and the market is answer.

So what has happened to me since the crash. I've lost money. Lot's of money. But my portfolio is better than ever. I took this as an opportunity to rejig my holdings. My income from dividends is up some 60% since the crash. If some of my holdings cut the dividend, c'est la vie. I can handle it.

And,  although I don't recommend it, I've done a little day trading and I'm up in the four figures. Retirees have time on their hands. We are a perfect group for doing a little successful day trading.

I may not be able to tell my friend what to do. Only my friend knows what keeps her awake at night. For me, it's locking in losses. I'm an optimist. The market goes up and down. I like to dwell on the ups.

At the moment, and I know this is hard to believe from the stuff one reads and hears, but many of us are making money in the market at the moment. Let me end this by sharing a diagram charting of my portfolios recent performance. My portfolio is the purple line with the big dots. Take note: a retiree's portfolio is NOT the market. (For a peek at stocks I like, see my post before this one.)

 

Stocks I would consider holding in a conservative portfolio

The following are all stocks that I would consider holding in a conservative portfolio. Note: I personally do not like bonds at the moment but if I was going to enter the bond arena I'd look at the ETF ZAG. And now to the stocks:

ALA
BCE
BMO
BNS
BPY.UN (This one is actually a little dicey but I like to take a gamble now and then. It's fun.)
CM
EMA
ENB
FTS
H
IGM
NA
NTR
PPL
RY
T
TD
TRP
VIU (an ETF for international exposure)
XRE (an ETF for REIT exposure)
XUS (an ETF for U.S. exposure)
XRE (an ETF for REIT exposure)

There are other stocks that one could consider but this is the list that I settled upon. To keep things simple I would just divide my investments equally between all the number of stocks purchased, except for BPY.UN. I'd only put half as much in the Brookfield offering.

Lastly, if you will need some ready cash, keep enough cash to meet your anticipated needs for two years. Two years maybe a little much as these stocks will, as a group, if they don't cut the dividend, yield more than five per cent annually. Do your own calculations but make sure that you do some and then keep the cash you calculate you must. Don't get trapped into selling low.

By the way, I find a spread sheet, like LibreOffice, a great help in managing a portfolio.

Cheers!

This may not be the time to permanently exit the market.

I'm writing this for my niece. Why? Her married daughter and her husband saw their investment shrink by about $5,500 and they got out. Was their move wise? The short answer: I don't know.

Purple line with dots is my portfolio. Cash holds its value in crashing market.

You see, I got out of the market. I had lost a chunk, I looked at the coming coronavirus tsunami and the simmering petroleum war between OPEC and Russia and I cashed in my chips.

Within days the market was in full correction mode and racing for bear territory. If I had stayed fully invested I would be down in the six digits. Some of my junior oil holdings would have lost 90% of their pre crash value.

Maybe I should have held onto my cash, waiting for the dust to settle but I'm a firm believer in the "you can't time the market" idiom. After a good solid drop, I put half my money back in the market. When the market was deep into a bear-driven frenzy,  I put almost all my remaining money back into the market. Then, I sat back and watched the value of my portfolio shrink.

But bear markets do not just drop. They bounce. And each time the market bounces it often returns almost to its previous highs. Hence, the advice: "Buy on the dips and sell on the rallies." This can work but more often than not buying on the dips, buying quality, and holding patiently is an even better rule to follow. It may take years, but it will come back. Patience.

How is it working out for me? Look at the following graph and you tell me.

The purple dotted line is my portfolio. The blue dashed line is the Canadian market and the red dotted line is the U.S. one.

Let me leave you with this thought: COVID-19 is a virus. It is here and quickly becoming endemic. It is of most concern to seniors and those with certain pre-existing medical conditions. The curve will flatten but not return to zero. Until a vaccine is available, there will be an ongoing background noise of a small amount of illness and, sadly, death (of mostly seniors). There is no easy exit ramp in sight. The economy will bump along for a year or more. Don't bet on a quick fix as folk like Donald Trump are promising. They are talking pipe dreams!

A one fund portfolio. How's your advisor doing?

Note the big loss in 2016. Losses are a part of investing and part of a well managed retirement portfolio.

Warning: The figures in my little post came from a spreadsheet and the TD historic figures for TDB622. I cannot swear by them. They are close, I'm fairly sure, but without an editor, errors are more possible. The point I am making is valid. Whether my figures are completely accurate is open to question. Cheers!
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Do you have a financial advisor? An expert who guides your portfolio into the best investments carrying the least risk. I don't have one. When I did, I could not afford the losses.

Let me give you an example and then you can compare it to your experience.

In my example, a fellow has an RRSP at retirement His wife also has an RRSP. He retires at age 60, taking a buyout. He has a total of $500,000 to invest or with which to buy an annuity. When told an annuity would only deliver $26,000 annually and it would not increase one cent with inflation, he put the money in the TD Monthly Income Fund (TDB622).

Unfortunately, he needed money to live, and so he was forced to immediately remove $26,000 from his buyout money to live. He invested the remaining $474,000 in the TD fund. It was an amazing year. The market was recovering from a serious bear market. Come Jan. he cashed units worth $26,343.20 to raise money to live. It was his portfolio and he was going to increase his payments with inflation. The remaining mutual fund units were left in the fund. He told the bank to apply the DRIP approach to his account.

He continued doing this annually until January 2020 when he removed $31,333.51 to live. This made him smile. If he had gone the annuity route he would still be drawing only $26,000 annually. Life would be getting very difficult if he had purchased the annuity as so many had advised.

He started the year with a mind boggling sum: $698,790. And then the coronavirus hit and the Saudis and Russians got into an oil war. By mid March his portfolio had shrunk to $685,220. He wasn't worried. You see, our senior was a bit of a nerd despite his age. He knew it would take about $602,565 today to buy what $500,000 would buy back in 2009. No matter how one calculated it, even with the great loss, he still had a comfortable amount of money.

He knew he'd have to lose more than $80,000 to be back to where he was when he started. Would he lose another 12 per cent. It was possible. But then he'd lived through a decade of the ups and downs of the stock market while owning TDB622. One year he had actually lost almost $55,000.

This bear was going to consume more than he would have thought possible but that's the market. When he got to worrying, he had only to think of 2009 and 2010 when the market was climbing back from the disaster that was 2008. He was confident the bull would return given enough time.

Don't panic. Learn.

As you may know, I'm a senior and I'm retired. My pension 1s very poor. It wouldn't pay the annual rent on a one bedroom apartment in the city where I live.

I took an early retirement and had to accept a 25 per cent cut in both my pension and CPP payments. Why the cut? Without an income, I had to start drawing on these five years earlier than planned. Sadly this was still not enough to balance our books and my, who is younger than I am, was also forced to draw on her CPP early and she took an even bigger hit. And these hits are permanent.

We turned to the stock market for income and began buying stocks and ETFs. Thanks to the bull market which just stumbled, we have balanced our bills with ease for the past 11 years. When I retired we had a portfolio worth x-amount. We have drawn annually on our savings for the past 11 year, and yet, before the bear market began clawing back our gains, we had a portfolio more than 60 per cent larger than when we retired.

My wife and I are managing our own investment portfolio. We have self-directed TD WebBroker accounts. We do not have a financial advisor. Why? I gave almost $4,196.71 to a London Life financial advisor back in 2000. When I retired, it took some effort but I got 75% of my original investment back or about $3147.53.

The source of that investment was money that I had accumulated in a London Life annuity policy. They came knocking and promising and I fell for the spiel. If the money had been left untouched, it would have been so much better for me, but not for them. They received an annual management fee for this costly, to me, fiasco.

I've made some other bonehead financial moves, more than I can address in this short essay. But, I must say that I have always landed on my financial feet. I've learned paper losses can be managed if you keep alert and have a modicum of luck. Note the mention of luck. Never discount luck. Always position yourself to be in place financially where a lucky outcome is expected.

What has amazed me over the years is the consistent flow of poor quality of investment information filling the financial pages of our newspapers. For instance, never sell but weather a bear market. Simply hold on, ride it out, and it will recover. I call this advice incomplete.

Check the chart on the right. The purple line with heavy dots is my portfolio. The two other lines are Canadian and American markets. While all the usual market trackers were diving, I held a straight course. Why? I had sold my equities and gone to cash.

Clearly, this was a winning move in the short term but staying out of the market indefinitely is fraught with danger. A big danger is, as the usual advice warns, one risks being caught offside when the bull returns.

And so I put half my funds back into the market when my investments had entered true correction territory. I immediately lost thousands. Sounds bad and in one sense it was; I lost thousands. But, as a percentage loss my loss slashed by half by the fact that half my porfolio was still in cash.

Think about it. If you have a hundred thousand dollar retirement account and you enter the market when it has already corrected, your losses are zero and the market losses are10 per cent or more. If you only invested half your cash and it dived toward bear territory in tandem with market, you would lose $5000 immediately. The market would be down a full 20 per cent or more but you would be down only five per cent.

I have never seen this pointed out in any newspaper account detailing what happens during a market collapse.

With the market in full bear market mode, I invested the vast majority of the second half of my cash holding. Like the first money, this second round of investments dived as well. I lost thousands more. A reporter who doesn't understand the market might very well be reporting that I was now caught in the middle of financial blood bath. Oh pooh! This isn't all that bad at all. Do the math.

You are down by five per cent and double your holdings. You now have $95,000 invested in equities. You lose a further five per cent or $4750. You have lost a total of $9750 from a $100 thousand portfolio. You are down 9.75 per cent. But the market is down 25 per cent.

Your investments have not even entered correction territory. And, as is par for this course, the next day the markets take a bounce. This is a screen grab of the gain my portfolio made immediately after the bear market buy.

The info on the left only applies to one of my portfolios. The other portfolios all  performed well. One was actually up 13.7 per cent while another was only enjoyed an increase of 3.68 per cent. For this reason we will only claim only an overall recouping of six per cent. But again, do the math. You are now down only about 3.75 per cent while the media is reporting that retired seniors are facing financial disaster.

Facing a disaster? Maybe. Maybe not. You have almost all your money back but, let's be honest, it is all in paper gains. In the coming months of potential financial turmoil you may well lose at least ten percent of it. Maybe more. But, and it is a big but, your dividend has taken a big jump in real, hard cash. Your portfolio now contains far more stock. Each additional share, and you have hundreds of additional shares, each one pays a nice dividend.

My dividends, for example are up in the five digits. I fully expect to see dividends cut. I can afford it. I have built a cushion into my portfolio.

It is not unreasonable to believe you may realize a dividend yield of about five per cent, or better, calculated using the projected income and your total investment. If, like me, you can squeak by with a dividend income as low as 3.5 per cent for a year or two, you can weather a cut in your dividend income of about 30 per cent.

If you have kept a little money on the side to supplement your dividend income for a couple of years, you are in good shape. Headlines like the one on the Financial Post will not make you lose sleep. And remember, bear markets do not last. Some are as short as three months. Others may last as long as three years. In the end, all are followed by roaring bull market that climbs halfway or more to its former highs.