ZPAY vs original Million Dollar Portfolio

• This is an older screen grab of my ZPAY DEMO Portfolio. It was taken Tues. afternoon, June 29th. This is an amazing total value for a demo portfolio opened at the end of Nov. 2020 with an initial value of $1,000,000. For updated values, scroll down to bottom of post.
  

My Million Dollar Retirement Portfolio DEMO has performed very well since Fisher Investments Canada inspired me back in November to "put my money where my mouth is."  Fisher claimed withdrawing a full four percent annually from one's retirement portfolio would likely result in total portfolio depletion at some point. I agreed but many retired seniors, like me, have no choice. We must withdraw at least four percent annually to make ends meet in retirement.

Fisher used million dollar portfolios in their examples. Following their approach, I started a million dollar demo portfolio in Nov. of 2020. Each month I have withdrawn $3,330 to emulate the withdrawals made during retirement.

This is where it gets interesting. The value of my stock holding gained so much in this bull market that my yield expressed as a percentage dropped dramatically. My creative solution? Liquidate the Million Dollar Retirement Portfolio and put all the funds, the original million plus all the gains, into the BMO exchange traded fund ZPAY. My ZPAY Million Dollar Portfolio had a rough first day but it is recovering quite nicely. As you can see, on Tuesday, June 29, 2021 it had a balance of $1,230,293 at market close.

What do I hope to gain from the switch to ZPAY? In a word: yield. With my original portfolio, I'd have felt I was doing well if I removed four percent of the original investment annually ($40,000 on a $1,000,000 investment) and added an annual increase based on inflation. This would not have been good enough for Fisher Investments Canada, I'm sure. Following their withdrawal approach, I'd run out of funds at some point.

With ZPAY I can be more generous. If the portfolio gains value during the year, I will remove a full four percent on the new increased balance on top of my original withdrawal. I will attempt to never remove less than the four percent calculated on the original million or $40,000.

So far, I believe I am on track. Time will tell.

Date                               Original Portfolio                       ZPAY Portfolio             Total Withdrawals

• June 30/2021             $1,229,607.45                       $1,232,308.60                $23,310
  
• July 3/2021                $1,234,006.25                       $1,228,277.65                $26,640 *
  
• July 6/2021                $1,236,530.39                       $1,242,387.15                $26,640
• July 8/2021                $1,234,255.95                       $1,248,837.39                $26,640
• July 16/2021              $1,242,484.29                       $1,260,125.31                $26,640
• July 19/2021              $1,227,570.05                       $1,266,172.41                $26,640
• July 20/2021              $1,235,784.70                       $1,265,769.27                $26,640
• July 24/2021              $1,238,918.44                       $1,258,109.61                $26,640
• July 31/2021              $1,237,770.71                       $1,252,360.77                $29,970 *

It's too early to say a lot about these figures but note how well ZPAY performed on bad market days.

A screen grab from the close Thursday, July 8, 2021.

Million Dollar Portfolio Yields $77,400 annually

What if I sold everything in my Million Dollar Portfolio Demo? Why would I do that? Two reasons: One, it now has more than a quarter of a million dollars in unrealized gains. And two, the dividend income is now below 3% when calculated on the most recent values. Fisher Investments Canada will be saying, "Told you so!"

This brings us to my latest brain wave: Sell everything in order to let it all ride on ZPAY. If this sounds risky, if this sounds more akin to gambling than investing, it may well be just that: risky and a bit of a gamble.

I created a new demo portfolio based on selling my Million Dollar Portfolio, paying all the associated costs and buying 40,314 units of the BMO ZPAY exchange traded fund. This action cost me hundreds of dollars in fees but I think it may be a wise if risky move. Why? My gut tells me that in a downturn, ZPAY will not lose more than a quarter of a million. If my gut is right, my original principal is safe.

ZPAY yields 6.31% annually or $1.92/unit annually or 16-cents/unit monthly. That gives an income of $77,402.88 annually. At the moment, I am removing $3330 every month to emulate the money that a retiree would expect to realize in order to help cover  his or her monthly expenses in retirement.

Here is how I see this gambit playing out at the moment. ZPAY yields $6450.24 monthly. $3330 is removed from this amount to pay bills in retirement. The remainder, $3120.24, is used to buy some good, dividend paying stock like BCE. After 12 months I have more than $37,400 in stock. (With such a large portfolio, it might be possible to work out a reduced trading fee. I'd certainly contact TD WebBroker and have a chat with a supervisor.)

Why would I even contemplate making such an extreme move? Equities reward an investor with more capital gains then ZPAY and spreading the risk is never a bad idea and owning a mess of stocks and ETFs certainly spreads out the risk. Yet, on the other side, ZPAY is not just one investment but a mix. This is par for the course when it comes to ETFs. ZPAY may not be quite as single-minded a play as it appears. And ZPAY will make the 4% withdrawal easy.

I will try to never remove less than $3330 per month and, if the portfolio increases in value, I will recalculate the withdrawal every January if necessary and increase the withdrawal rate back up to 4%.

• June 22, 2021 -- $1,227,172.71 after paying all the buy/sell associated fees (Almost immediately after I made my purchase, my ZPAY demo investment dropped several thousand dollars. Ouch!)
• June 26, 2021 -- $1,224,350.73. Despite making $1209.42 today I am still down thousands in just days.
• June 28, 2012 -- $1,227,575.95. This is after withdrawing the July $3,330 payment.
  

Oh, the original portfolio is still intact and functioning for comparison.

Investing not trading

At the end of May I designed a small portfolio of $340,000 to demonstrate my approach to investing. I did this for two close friends who are switching their retirement funds from a financial manager to a self-directed portfolio.

I created the portfolio, "May 29 2021 Portfolio", using Portfolio Manager found on the TD WebBroker site. It is June 22 and this little portfolio is up almost $6100. Yesterday, I created a report. Take a look.

It is a fairly conservative portfolio that is heavily weighted toward dividend paying investments. It is delivering almost 4% annually in dividend income.

Although it is top heavy when it comes to Canadian investments, it does contain a good amount of  U.S. exposure and a bit of international as well.

The only item of interest, as far as I am concerned, is the Bank of Montreal ETF ZPAY.

Instead of holding bonds, I opted to put my free cash in ZPAY. I have to admit that this is a questionable investment. That said, ZPAY in up more than $800. It is performing exactly as I hope it would -- maybe even a little better.

If there is a solid correction, more than 15%, I will consider selling some or all of the ZPAY, probably at a relatively small loss, and spreading that money among the equity holdings.

If there is no correction or bear market, ZPAY should hold its own while delivering 6% or more in cash dividend income paid monthly. Come back in a year and we'll have a better handle on how well my investment strategy, expressed this portfolio, performs in real life.

Does ZPAY act an an alternative investment?

For years I have thought I could run a portfolio better than many financial advisers. Last November I decided to put my idea out there for all to see and to judge whether or not I was successful. The first thing I did was post a Million Dollar Retirement Portfolio demo. It is posted here:

Million Dollar Retirement Portfolio demo

Since last November two things have happened: One, a reporter told me than one success is not enough. One is not proof that I am onto something. And Two, a friend started a self-directed retirement portfolio and asked my what to do with their $340,000 investment. The bank was no help. I designed a portfolio for them and I am now following this new portfolio as well:

May 29 2021Portfolio

Both portfolios are doing quite well. My million bucks has grown to @1,220,250 since November and the May 29th portfolio is now at $344,450.

My goal with both portfolios has been to realize a dividend income of 4%, at least at the beginning. Put your money in an annuity, it won't pay more with each passing year. Unless you pay a very large fee, annuities payments are etched in stone for the life of the annuity. If I put a million dollars aside with the intent of withdrawing $40,000 each year, I feel I am a success if I am able to just deliver the $40,000 annually. Of course, I hope to increase this payment but I readily admit to the difficulties in achieving this.

Which brings me to ZPAY. This Bank of Montreal ETF is paying a dividend of 6.32% today. That payment would go a long way to keeping my portfolios close to meeting the 4% payout goal. But, would investing in ZPAY be wise? Would I be better off leaving the money to gather dust in cash?

I really don't know. But, my gut tells me that ZPAY, if held for years, might very well be the hedge that I long for. Over time my gut says it will outperform cash thanks to the dividend and although it will lose value in a correction or bear market, it may not lose as much as my other equities.

My demo portfolios have ZPAY in the mix and ZPAY looks good in those portfolios. The day I invest some real money in ZPAY seems to be coming closer and closer.