Why I Just Bought a Mutual Fund

My wife has a LIRA and a RSP. Every now and then she asks me how her accounts are doing but really has no interest when it comes to investing money. My wife turns 57 in another couple of weeks and only cares about not losing money and that her investments are relatively safe. She trusts me implicitly.

I handle her accounts a lot different than my own, simply because depending on the month or the year I want to make sure she understands what and why things are happening the way they are. During the financial crisis of 2008/9 this was extremely difficult to articulate to her.

Once I told her that Iceland went bankrupt in 2009 it put losses we were experiencing in a bit better perspective.

Nobody likes to lose money, this is a given. Where our collective investments differ is how soon they recover. One prominent early retiree who used to profess a DG strategy and claimed his portfolio was recession proof, turned around and sold all his stocks near the bottom of the market chaos in 2009. You can read my review of his strategy and history here. Try not to be this guy.

It seems even Canada's youngest retiree couldn't handle losses as much as he liked to claim he could. Reality is a cold hearted bitch sometimes. The stock market is a really poor place to learn how to invest. 

Be careful who you read and take investment advice from.

The whole reason I decided to dump all my wife's individual stocks was out of her concern over taking over her investments should something happen to me.

Her concerns are legitimate as she knows nothing and has no interest in learning about buying and selling stocks.

So, I bought her a mutual fund as a one stop shop to better understand her account holdings. If she wants to sell it all when I'm gone it's just one fund. Kind of like an auto-pilot strategy with dividends automatically invested for her.

This is like going back to the future for the both of us. I dumped all of our Fidelity and IG mutual funds back in 1999 when we got married. With aging comes adaptation and the realization that our lives are closer to the end than the beginning. For her to take over if I die first then a mutual fund makes perfect sense for her to handle.

I decide to buy her the Mawer Balanced Fund.

Why Mawer (MAW104)?

• Lost cost at a reasonable MER of 0.92%
• Ranked 12/1258 of Global Neutral Balanced Funds
• A wrap of 7 individual Mawer Funds
• 5 star Morningstar Rating
• Returned 10% last year
• same fund manager since 2006

There are just so many funds to choose from but from all I've read about the Mawer family it's a highly rated very conservative investment.

I love the simplicity of buying this mutual fund for a portion of my wife's retirement money. I have her RSP in a series of 4 X ETFs that is simple but a little more complex than owning a mutual fund. I am really thinking of switching her into Vanguard's new ETF VBAL with a cheap MER of 0.22%.

The fact that I don't have to worry about picking stocks for my wife's account relieves a lot of stress for me if they take a dump. I don't have to answer questions on why I lost so much money like 2009.

When the fund goes down in value and it will, I believe it will recover faster than an all stock portfolio which she had. This 60/40 mix of mutual funds inside a mutual fund with a history of returns dating back to 1988 seemed to be a great choice and ticked off all the boxes I was looking for.

My Final Take

I have no plans to sell all my dividend paying stocks that I own. My wife still owns ETFs in her RRSP so we still need to have that discussion on whether she feels comfortable handling it in the unfortunate event something should happen to me. More to follow at a later date.

If you have a SO I truly believe when you enter retirement they should be on board and fully informed on the investment portfolio. They should have an understanding of how to take care of things should something happen to the other partner with all the knowledge. Putting things as much on auto pilot will help ease those concerns. Buying a balanced mutual fund does that for us. 

Would you ever consider a mutual fund for portfolio simplicity and to ease your spouse's concerns should something happen to you?

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Do Your Stocks Make Money?

Profits are what drive stock prices up. If your company doesn't make money year after year them why continue to be a shareholder? This is why you hear a lot of talk around earnings season. Investors are waiting in the weeds in anticipation of company results from quarter to quarter. They are hoping that the company beats earnings and reports higher profits.

Some of the most profitable companies in Canada according to the latest Globe and Mail survey of top 1000 companies, continue to include;

Royal Bank (RY)
Teck Resources (TECK.A)
Air Canada (AC)
Canadian Tire (CTC.A)
West Fraser Timber (WFT)
Linamar Corp (LNR)
Cascades Inc. (CAS)
Methanex Corp. (MX)
Canfor Corp. (CFP)
BRP Inc. (DOO)
First National Financial (FN)

I've further screened these companies choosing those with a 5 Star G&M rating. I personally only own RY from this list but will add all these stocks to my watchlist for further consideration when my cash builds up to buy more stocks.

If I just use those listed by profit in order of dollars then the list would be;
RY, TD, BNS, CNR, FEC, CM, SU, TRI, CVE, ONEX and TRP.

As you can see the list changes dramatically to include a lot more financial stocks and dividend growth companies. You can pick and choose as you wish. You could do no worse building a portfolio from any combination of these very profitable publicly traded companies in Canada.

Apple continues to be the top profitable company in the world.

"Corporate profit is what's left over after the company pays it's expenses." 
- Investopedia 

Why It's Important

Looking at and analyzing a company's profits will tell you whether the company is making money or not. Good signs to look for are;

• growth in retained earnings
• increased dividend payments

I always enjoy reading the earnings report that shows increasing profits (also called a beat) followed by an announcement of a dividend increase. Usually a good time to buy.

Did you know that Canadian Utilities (CU) has increased it's dividend for 43 straight years.

Investors deserve to be paid something for taking on some risk by investing their hard earned money in a company. This is why I love dividend investing for income.

Dividends and the growth it generates will end up making up 90% of our long term gains. Now, that's impressive!

Other Factors to Consider

Of course corporate profits aren't the only things to consider when making a buying decision. You might find it helpful to look at;

• is the stock cheap? (price/earnings ratio)
• yield
• what stock in a sector yields the highest
• payout ratio
• recurring revenues

Some other questions to ask yourself before putting your capital at risk include;

• what are my long term investment objectives?
• what personal preferences do I have?
• what is my risk appetite for individual stocks?
• what are my thoughts on diversification?
• how much should I expect my return to be?
• when do I need the money? (time horizon)
• what are my income needs? (now and for retirement)

I don't personally invest my money in anything cyclical. When you look at some of the top companies listed above you can see a lot of them are in the materials or energy sector. 

It's not just the fact they make money, it's when they are out of favour you  don't know how long they will be down or how far they will drop. I can't afford to wait for the cycle to turn in my favour.

Cyclical stocks will interrupt your sleep pattern. It does for me so I stay away.

Always invest in profitable dividend growth companies and hold on for the long term ride. In the short term you won't see them doing much.

What do you look at to make sure the companies you buy are making money?

Related Post: Dividend Stocks-The Gift That Keeps on Giving

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Yield and Dividend Growth

This is what most dividend growth investors do with stocks. We search out a generous 4-5% yield and buy companies when they are attractively priced.

Next, look for a steady upward growth record in that dividend that will give you some sort of an idea where your stock will be headed based on what it has done in the past 5 or 10 year period.

In a recent article by John Heinzl he lamented that since he started his new dividend growth portfolio in Sept. 2017 the portfolio was down in value 2.1% but that the dividend payout grew by 4.8%.

Would you be happy that when you looked at your money and found out that you had less there  than you had 6 months ago? I know that would crush most people.

As a retiree I just focus on that dividend and in the Yield Hog's case that part of the income stream is growing nicely. Safety is also important. The dividends are growing safely and should continue to stay well ahead of inflation.

It's not sexy and not for everyone and is just one strategy. I do find buying big blue chip companies that have been around for decades works for me. Let's look at some and what they yield and how they have grown;

Enbridge - 7.1 % yield, 10 yr Dividend Growth 14.6%
BCE - 5.6% yield  10 yr. DG - 7.1%
EMA - 5.6% yield 10 yr. DG -  9%
TRP - 5% yield, 10 yr. DG - 6.2%
CIBC - 4.8% yield 10 yr. DG - 5%
SJR.B - 4.4% yield 10 yr. DG - 7.6%

These are just some of the large cap highest yielding stocks right now with, added in 10 year dividend growth records. 

It also represents a nice mix of a bank, utility, telco and energy infrastructure. The longer you hold these types of companies the higher your yield will go up as you collect those dividends and realize that growth.

Ten years is an excellent holding period and also a good indicator on what the expected return will be in the future, but no guarantee.

From the above example you can expect BCE to return 12.7% a year every year that you own it. Y + DG = Total Return.

This is what I have learned about safety, diversification and asset allocation. Pick just a few stocks and look out long term. No need to buy baskets you know nothing about. I own all of the stocks above and consider them a great starting point for starting a new portfolio. Another good practice I like to use is, ask yourself, "will the stock I just bought today, be higher or lower in price in 10 years?"

In the short term none of these down days really matters.

If all of this stock picking isn't for you, maybe it's best to stick with a balanced portfolio like the one proposed here. 

"I don't want a lot of good investments. I want a few outstanding ones."
- Philip Fisher - Common Stocks and Uncommon Profits.

Growth is the key, so to win we must focus on that. DO NOT and never let these day to day price fluctuations get to you. Hold to receive that 10 year DG record.

Related Post: Dividends Power Portfolio Returns

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You Should Sell in May and Go Away -True or False?

We have all heard the expression 'Sell in May and Go Away' but what is it and should we act on it?

According to Investopedia - this is a trading adage that warns investors to trade their stock holdings in May to avoid a seasonal decline in equity markets.

When exactly in May do I sell and when do I buy back in?

Nobody really knows how to time this. This is why I never sector invest or base my decisions on the seasons in the sun or visit witch doctors with rattles to tell me when to sell stocks or buy them. I don't use seasonality as an investment tool or try and time the market in any way.

Does it Work?

The stats don't lie, the market has actually advanced 57% of the time in May dating back to 1928 according to Merrill Lynch. It has only declined 0.06% of the time.

If you exit the market in May you would be actually missing out on the best period for stock gains which has been the June-August period. Stocks have risen 63% of the time for a gain of 2.97% during these three months.

Since 1968 the TSX has averaged an 8% gain (dividends included) from November-April but only a paltry 1.5% from May-October. It's not just the TSX but it also affects most international markets.

September is actually the worst month of all posting losses 54% of the time according to Wealth Professional.

You either believe in seasonality or you don't. I am a buy and hold investor. When I've made a mistake I just wait for an up market to sell my losers and buy back something of better quality and hold that long term.

We have many seasonal investing professionals here in Canada that promote this strategy and are very successful at it. It is best left to active portfolio managers and not small time retail guys and gals like us. It's just too complicated.

A recent study conducted by Don Vialoux over at Equity Clock concluded that the ideal sell date to be May 5 and the buy back in date to be October 27.

Buy and Hold

I am more a John Keynes and Warren Buffett investor now. Select quality dividend paying companies and just ride out the peaks and troughs that the market hands out. Will the markets rise or fall during the time frame this year? The answer of course is yes it will.

I also don't like to incur unnecessary trading costs which would happen should I just sell my 14 stocks and buy them back later. That would be 28 transactions @ $9.99 a piece. Why bother? Some of these professionals on TV are just paid advertising for the wealth management firms they work for. Always seek independent advice if you need it to make a more informed deciion.

I also eschew typical Efficient Market Theory. I pick stocks. It's what makes me a speculator. It takes a lot of waiting and compounding to know when you're right. Over the course of time and with dividends growing you will win.

Most investors have a hard time sustaining paper losses and sell their portfolios at the exact wrong time. It would be nice to know what to do when bad things happen, problem is nobody knows anything.

In 2008 the market declined 41%. Can you take a loss like that when you need your money most? If you can't just get out of the market.

My Final Take

I don't want to sit on the market sidelines for 6 months of the year. I could never get the buy and sell date right. We all share a different investing horizon, risk tolerance and objectives for our money.

After the last crash in 2008 it took the average investor almost 4 years to recover their losses. That's a long time and something to really consider when becoming a buy and hold equity investor.

Thing is, nobody will achieve a 100% investing success rate. That's why I'm just trying to stay invested and buy and hold for the long term. Some other considerations to think about;

• the past does not mean anything for future stock returns
• sell in May is just one strategy
• always ask questions and stay informed about your stock picks
• select a few quality growing companies, I started with just 5

Will you Sell in May and go Away?

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On Growing Old and Investing

As I approach 62 years old, I think about the fact my body is starting to slow down. My joints are stiff and I no longer spring out of bed. It's a pretty slow process some days.

I also think of friends who have passed on so early. Some dying before retirement and others only spending a few years enjoying life after work and spending their pensions.

It gives me pause in these declining years about how to spend my time and what all my money now means.

What I Miss as I Age 

• my 20/20 eyesight. Can no longer read without glasses
• hearing loss is worsening, large crowd noise makes me ignore most conversations
• my granddaughters, living so far away visiting is restricted
• family gatherings becoming less frequent
• friends who've passed on
• my work mates

I don't mean to whine, just realizing that some adjustments have to be made so as not to end up like some of my former co-workers who I read about in the last post section of an alumni website I belong to.

Misconceptions on Aging

• I've got bad genes so it doesn't matter what I do. Ya maybe, but you can only control what you can control
• George Burns smoked cigars every day and lived to 100. It must be good for me too
• all my family members checked out early in their 70's so it's probably going to happen to me
• exercise is just too hard on my body and hurts
• these are your golden years, not so golden for some
• more time for travel anytime I want
• going back to work will give your life purpose

The Reality

The toughest part of aging and living in retirement also includes spending a lot more time with your SO.

If you are not used to adjusting your daily schedule to fit his or hers then you will be in for a shock. My daily timings are way different now then when working. More time is allocated and plans revolve around a totally different schedule. Some other things I ponder about;

• putting our investments on auto pilot
• my wife doesn't understand any of this, so setting up the portfolio should something happen to me so that she can is vital now
• keeping it simple is just overused jargon. Can your SO take it all over
• you won't be as energetic to see the world as you age
• my sister-in-law contracted Parkinson's at 63
• money is important but not everything

As far as having good genes, mine should be pretty good, as my Dad turns 88 in July. All his brothers lived to 90. I am also planning to live that long too. No reason to think I won't as I exercise every day and watch what I eat and drink.

Only booze I have is once a week (sometimes not even) with some of my ex-army buddies. We don't keep alcohol at home ever. I will buy some for company in advance and then it's gone when they are. 

Investing and Health

I mean why go through the exercise of DIY investing if you lead a destructive lifestyle? I'm not talking about not having a life, I just mean why not do all that you can to take care of yourself?

We all know what to do and what is bad for us but few want to make those types of sacrifices. Well, that's my observation in my world of family and friends.

We should all strive to live long enough to enjoy all that saving and investing so our retirement years will be filled with health and as much success as our working years.

What I Need To Do

• put my portfolio on auto-pilot
• show my wife everything that is happening with our portfolios
• read 500 pages a day
• make a plan for travel at least 3 X trips a year
• at least 2 X trips a year to see my granddaughters
• make up an estate plan that includes all account numbers and where they are for my spouse
• stop worrying about cash flow, there are much more important non monetary things in life 

My Final Take

It is going to happen to all of us in different ways and we will all do different things because well, we're all different. Sorry Capt. Obvious.

Where you are on your investing journey? and what are your future plans for your retirement as you age? It's never to late to put a plan in place.

Plans change, just beware of some of those risks along the way. Your health, wealth and happiness depends on it.

• get out of working life as soon as you can afford to
• they say turning 70 is the toughest. My Dad said that too.
• I took my CPP at 60 because I wanted to collect my money and I have seen too many friends not make it to 65 or 70

I really enjoy my retirement life so far but I always feel I need to get busier.

"Get busy living or get busy dying" - Andy Dufresne

I plan to do more living with our money and in retirement, before I slow down so much I can't.

How has aging affected your life so far?

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How Safe a Strategy Is Dividend Investing?

There have been a lot of articles lately in the business news about dividend stock investing. Questions mostly surrounding risk, suitability and the concept itself.

Those that have visited my blog before already know that I'm a big proponent of this strategy and the earlier you start dividend investing the more you will be able to see and realize it's benefits.

This is NOT a trading our way to riches strategy. That is best left to gamblers and not the money you need for your future or retirement.

I learned this a while ago and confirmed through reading 'The Investment Zoo' (out of print) by Stephen Jarislowsky.

It's not complicated and here are just a few points he advises to keep in mind;

• have a plan and stick to it, make it early in your investing life
• buy individual stocks and not ETFs
• by buying just a few of the best stocks you can be properly diversified
• don't buy cyclical stocks
• you will be rewarded sticking with long term dividend growth stocks
• look for companies that have a rising dividend
• if it doesn't pay a dividend don't buy it
• everyone under 60 should buy individual stocks under this criteria

That doesn't mean once you reach 60 you should dump your stocks. He wants you to start buying quality companies early so you can reap the rewards later in life.

I do have issue with the ETF part of his plan. I don't believe it should be an either or part of investing. I buy individual stocks and use ETFs to capture those parts of the US and Int'l markets that I don't understand. I think this works for us small people.

What Jarislowsky really means is Dividend ETFs. This point I agree with. This is just another form of sector investing which I also don't do. I don't know how anybody can trade in and out of different sectors using ETFs and make money. It's just not what I do. This is best left for professionals.

Dividend ETFs aren't necessarily composed of dividend growth stocks. Matter of fact they contain a lot of high yield energy and royalty plays. This is how they justify charging their high management fees. There is no growth in your dividend stream so why own it? 

Individual stocks are the place to be and if a company decides to split it's stock we also participate in that upside.

Rob Carrick recently wrote about Dividend ETFs in an article dated April 7/2018. You will see that they contain a lot of energy stocks. I don't buy any cyclical or commodity stocks either. Most of the constituents in Dividend ETFs are in my opinion not suitable for retirement portfolios, which is always my focus.

In a further article published yesterday there was an example highlighted of a woman who complained that her advisor had filled her portfolio what she called money losing dividend paying stocks. Really?

Her main complaints were;

• they seem to go down in price every week
• every year it seems to lose money
• i want to safe proof my portfolio
• I need my portfolio to last into my nineties

There is always risk no matter what your investment plan is. Carrick rightly points out that you have to ignore short term results with any strategy you use. Dividend stocks are NO safer than mutual funds or ETFs.

The thing is, dividend stocks are just best left alone and if like this retiree, you need income then you leave well enough alone and just hang in there.

We don't know exactly what stocks she owns and what her advisor bought but he should not have her in any energy or other cyclical stocks. For a ninety year old retirement portfolio it wouldn't be right.

The other misconception and where I disagree with Carrick is adding bonds to her portfolio now. They call this safety. Bonds don't grow. Yield doesn't grow. This is not a safe strategy to grow income and stay ahead of inflation.

I really hope she doesn't sell out and dump all her dividend paying stocks and go to cash. That would be a huge mistake and a sure fire way to run out of money.

What She Should Do

• tell her advisor her concerns
• know what she's invested in and why
• stop looking at her portfolio every day
• focus on yield and the growth of that yield
• ignore any and all short term fluctuations

It is sad to hear she is not enjoying the income stream she should be enjoying from using dividend growth stocks with her retirement portfolio. It really is the best way for her to generate that return as she ages.

I know I will be doing exactly that.

What do you think she should do?

Related Post: Retirement Strategy-Invest for Income

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Restaurant Brands - Good Time to Buy or Sell?

It was just announced that the parent company of Tim Horton's, QSR.TO Restaurant Brands International, has just entered bear market territory. What happened to the stock that hammered it down off it's high of $88.36 reached in October of 2017? It closed today down 29% at $68.26. OUCH!

Not that I know a lot about timing the selling of stocks, but I did sell my 100 shares back in May of 2017 at $75.83. Looking back I sold early and left some on the table but I did make a $2K gain.

I thought I would own Tim Horton's forever but the dividend yield at the time was too low for me entering retirement. I sold based on my gain at the time and my new found desire to generate income for retirement.

This was before all the head office turmoil in the news lately and some franchise owners desire to pass on the new minimum wage costs to their employees. The shares of QSR have been on a death spiral ever since.

Technically the stock started breaking down right after the New Year and since dropping below it's 200DMA it's dropped another 8%.

The Numbers

P/E 20.9
ROE 31%
Dividend Yield 1.9%
Annual Dividends $1.05
Payout Ratio 40%

Stock trades at a premium to the market and is expensive. Most of the problems with this company right now are with head office and investor relations. They have also requested franchisees foot the bill of a company wide face lift for all Tim's locations. This has been a red flag for institutions because it is seen as eating into the bottom line to the tune of $40M for each restaurant. The company will announce earnings 24 April 2018.

The Food

What can I say. This is just fried bread, burgers and southern fried chicken. I'm no expert but I'm pretty sure health conscious consumers are eating a lot less doughnuts, red meat and deep fried foods than they used to.

I just don't see the growth in this casual fast food sector of the industry, at least not with QSR. Coffee in Canada used to be it's big winner but even there, same store sales are trending down. Note to Tim's - your coffee tastes burnt! This could be why. In a recent survey consumers ranked Tim's coffee behind McDonald's, Second Cup and Starbucks. It is no longer Canada's favourite coffee.

Burger King is also not a place my kids or friends flock to. This is an American centric phenomenon that can't be accurately compared to Canadian locations. Popeye's is a new addition and I have no idea what sales are like here in the Great White North.

Is It a Buy

I would wait until after earnings are released and if they are good I would say it's a screaming buy on price and sales.

I'm glad I sold when I did but if you like buying stocks when they have been beaten down and on sale, QSR could end up being a winner. Right now the headwinds are blowing too strong and the dividend too low and not growing enough for me to step in and buy.

Do you own Restaurant Brands? Would you buy it here?

Related Post: Retirement Strategy - Invest for Income

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The Greater Fool Balanced Portfolio

In a recently published blog post Garth Turner published the breakdown of his weightings in a 60/40 portfolio.

I thought it would be fun to take it a step further and speculate on what particular ETFs constitute the mix. Everybody wonders just what funds they buy, but for that EXACT information you have to become a client.

That is totally reasonable considering all of the free information that is spewed our way on his blog. I am very grateful for all this no cost advice. Let's break it down for shits and giggles.

Fixed Income - 40%

Cash - 2% (High Interest Savings Account) 

PSA - Purpose High Interest Savings ETF. 

MER 0.12% 

Distribution Yield 1.29%

Global & Canadian Soverign Bonds - 11%

XGB - iShares Canadian Government Bond ETF.

MER 0.39%

Distribution Yield 2.43%

XSC - iShares Conservative Short Term Strategic Fixed Income ETF

MER 0.45

Distribution Yield 2.84%

Provincial Bonds - 3%

ZPS - BMO Short Provincial Bond ETF.

MER 0.28%

Distribution Yield 3.05%

Corporate and High Yield Bonds - 9%

XCB - iShares Canadian Corporate Bond Index ETF

MER 0.44%

Distribution Yield 3.09%

XHY - iShares US High Yield Bond Index ETF ( Canadian Hedged)

MER 0.67%

Distribution Yield 5.56%

Rate Reset Preferreds - 15%

ZPR - BMO Laddered Preferred Share Index ETF

MER 0.50%

Distribution Yield 3.92%

Total Cost Fixed Income = 0.40%

Total Distribution Yield = 3.16%

Growth Equity - 60% 

Canadian Equity and Dividend - 16%

XIC - iShares Core S&P/TSX Capped Composite Index ETF

MER 0.06%

Distribution Yield 2.87%

XDV - iShares Canadian Select Dividend Index ETF

MER 0.55%

Distribution Yield 4.17%

US Large Cap Equity - 13%

XSP - iShares Core S&P 500 Index ETF

MER 0.11%

Distribution Yield 1.72%

US Mid-Cap - 3%

XMH - iShares S&P US Mid-Cap Index ETF

MER 0.16

Distribution Yield 0.93%

International - 17%

XFH - iShares Core MSCI EAFE IMI Index ETF

MER 0.22%

Distribution Yield 1.96%

Emerging Markets - 6%

VEE - FTSE Emerging Markets All Cap Index ETF

MER 0.24%

Distribution Yield 1.30%

REITs - 5%

XRE - iShares S&P/TSX Capped REIT Index ETF

MER 0.61%

Distribution Yield 4.93% 

Total Cost Growth Equity = 0.55%

Total Distribution Yield = 2.55%

Total MER Costs = 0.47%

Total Yield = 2.85% 

(This doesn't include what you can expect in growth gains throughout the year. Garth's 7 year average gain is 7%. So, this is totally achievable and more than likely you can expect that type of market return should you decide on this type of balanced portfolio. It may be in fact a lot higher.

The Real Cost

Let's use a 150K portfolio as a starting point. We need to factor in what we would pay in management expenses and also investment fees to our financial advisor.

Our MER costs are 0.47% a year and our advisor fees are 0.50% (hypothetical but expect to pay at least that).

Now let's breakdown what will be extracted from our investment account on a monthly basis. This is done slowly so as not to alarm you with large cost withdrawals at the end of the year.

$150,000 X 0.47 (MER) = $705.00/12 = $58.75 per month. This is what you are paying to the ETF providers every month. Costs matter that's why you hear everyone say to keep them as low as possible.

$150,000 X 0.50 (Financial Advisor Fee) = $750/12 = $62.50

Total Monthly Costs of Ownership and Management = $121.25 per month or $1,455 yearly. 

If that sounds cheap for professional management of your portfolio that's because it is. You can't forget this includes tax planning to make sure your PF is tax efficient, a personal relationship, RESP advice, automatic re-balancing and advice on whether you can afford a mortgage or not.

Portfolio Projection @ 7% return

$150,000 X 7% = $10,500/12 = $875 per month

Total Net Portfolio Return - $875 - $121.25 (expenses) = $753.75 per month or $ $9,045 yearly.

Provided that you capture that 7% average. I believe this is being conservative. So, before you say or think professional management of your money is expensive ask yourself; how you are doing without it?

At the end of year #1 you should have a portfolio value of $159,045. 

Alternative Balanced Choices

Let's say the thought of going to a professional financial advisor like those at Turner Investments is not for you. What else is available?

These are some of the popular choices I know other DIY investors flock to.

MAW104 - Mawer Balanced Fund

MER 0.94%

Distribution Yield 1.11%

This fund ranked 12/1258 in the Global Neutral Balanced Fund Category. It has an 11% average return over the last 5 years. You will have to re-balance on your own if you have more money to invest either monthly or yearly. Suitable for small sums of money under 150K. This is a fund made up of a collection of 7 Mawer Funds and some Canadian T-Bills.

On a hypotheical $150K portfolio your monthly cost would work out to be;

$150,000 X 0.94 = $1,410 yearly or $117.50 per month

It is simple and easy to implement but keep in mind you are on your own, no advice given on what your personal financial situation is.

$150,000 X 11% (avg. 5 year return) = $16,500 yearly or $1,375 per month

Total Net Portfolio Return - $1375 - $117.50 (expenses) = $1257.50 per month or $15,090 yearly.

At the end of Year #1 if you capture the 5 yr. average you should have a portfolio value of $165,090.

INI220 - Tangerine Balanced Fund

MER 1.07%

Distribution Yield - Not available

The fund ranked 35/1258 in the Global Neutral Fund Category. It has a five year average annual return of 8.78%.

On the same $150K portfolio investment your monthly cost would work out to be;

$150,000 X 1.07% = $1,605 yearly or $133.75 per month

It is simple and easy to implement but keep in mind you are on your own, no advice given on what your personal financial situation is.

$150,000 X 8.78% (avg. 5 year return) = $13,170 yearly or $1,097.50 per month

Total Net Portfolio Return - $1097.50 - $133.75 (expenses) = $963.75 per month or $11,565 yearly.

At the end of Year #1 if you capture the 5 yr. average you should have a portfolio value of $161,565.

Tangerine is more expensive, ranks lower and delivers a lower return. This fund picks and buys individual stocks and bonds to get to a 60/40 balanced mix.

VBAL - Vanguard Balanced ETF Portfolio

MER 0.22%
Distribution Yield - Not Available

Another portfolio consisting of 7 different Vanguard Funds. It has only been in existence since 25 January 2018 so is brand new. Word of caution that this is just one asset and as Garth so rightly points out that one asset does not make a portfolio. It is cheap and cheap for a reason. Do your own research on these alternative balanced choices.

I don't own any of them.

Why The Different Total Returns?

We are using average returns here. They might be higher for "The Great Fool Portfolio' that I just made up hypothetically.

Also, my MER cost projections for the funds I chose are going to be different than what is actually chosen by the financial professionals. These are MY choices and NOT the final make up of any portfolio.

Garth and company to be sure will have chosen cheaper and different ETFs than I did. They would probably choose US domiciled ETFs for their US and Int'l exposure.

For simplicity sake I stuck mostly with Canadian providers and mostly iShares. This will skew the cost and impact my portfolio projections, so don't automatically say this portfolio lags. It's just an example of what can be done and NOT what will be done for you.

This is an extreme general example of using ETFs to compile investment funds based on the current weightings Garth has provided. Nothing more.

My Final Take

Mawer, Tangerine and Vanguard options are all just a one asset play. One asset does not make a portfolio.

Professional money management can generate superior returns over time combined with spreading out risk over multiple asset classes and doing so in a tax efficient manner. Best suited for portfolios over 150K.

Everyone is different in their risk tolerance, ages vary and so do needs and goals. I have no idea what your situation is and what portfolio would help you sleep at night.

Having a balanced portfolio as in the example weightings prescribed by Garth, you can certainly accomplish that and also be able to snooze through and ignore any crisis happening in the world today. Your money will be at risk sure, you can't get away from it. All you can do is lower risk. Garth and company have accomplished that and done it for you.

How would you construct a portfolio? Do you use a financial advisor?

Related Post: Portfolio Asset Allocation

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The Problem With Bonds

With all the market volatility lately there have been a ton of articles on bonds and bond investing. Blog posts and newspaper articles on selling stocks and buying bonds. With the prospect of a market crash investors are selling stocks, right?

That is exactly what is NOT happening. Investors are fleeing bonds.

In a recent Bank of America Merrill Lynch survey fund managers have cut their bond allocations to their lowest level in 20 years.

What's happening?

Investors FEAR inflation that's what's happening here. Bond yields have spiked indicating a bear market in bonds is coming. You will lose a lot of value.
Where is our safe haven now? Why hold a 40% allocation?

Everyone, well at least those guys/gals you pay to manage money are moving to CASH.

Say it isn't so. Cash pays nothing and just languishes. If you feel safe then by all means go to cash. I would instead of buying bonds.

Why? the reasons given are many but it comes down to reducing volatility, but does it? 

Do you feel more comfortable knowing you have bonds in your portfolio? 

If you do then OK but I would argue that's a simplistic reason to own them. Perhaps you just want a balanced portfolio and that's great if it's your strategy.

We hold a bond ETF with 1,000 shares of XQB in my wife's portfolio. I don't hold any. When she retires, I will convert that fund into 100% dividend paying stocks. 

The main reason is I DO NOT want to fix any of our income in retirement. I want all our income growing and not fixed to a specific set rate or distribution. Staying ahead of inflation and preserving the purchasing power of our dollars is vital. The last thing I want to do is run out of money as we age.

Fixed income will not grow and you will spend it all as the years go by.

Bond Pros

The bond and balanced investors will tell you that bonds are just a must have as you age and to provide a parachute, a soft landing if you will during times of stock market stress like we're currently experiencing. Some of the reasons they give are;

• a buffer against market drops. 40% of your PF recommended in bonds
• diversification with government, corporate and high yield choices
• steady predictable yield
• used in most asset allocation models
• financial advisors always recommend them
• when rates fall bonds rise in price, so it's a hedge
• if you want regular interest income, you need bonds

Cons

It's really a reward less risk buying bonds. I mean what is the reward here for taking on a low interest distribution? Rates are rising right now so bonds prices are depressed. 

My wife's XQB Bond ETF has lost a total of 5.4% since purchase and it yields 2.4%. It deposits $43 monthly into her account. The payments have not kept up with the losses. She is out $1200 on the capital investment after distributions.

Better off to have been in cash. Other reasons I dislike bonds or any fixed income products;

• not enough reward for investing in government debt or high yield
• low interest payments and there is stagnant growth
• yields on dividend stocks are higher
• Warren Buffett is not a fan (good enough for me)
• sold as fixed income by advisors
• hard for retailers to buy individual bonds
• lending money to the government is never a good long term plan

Stocks are not cheap either because we have huge debts both personally and in governments everywhere.

I invest in dividend stocks for the cash flow. The future of that cash flow is all I'm concerned about. Building a steady growing stream for my retirement is my goal.

"The assumption that bonds were a worthy risk damper for long term investors was a huge mistake" - Warren Buffett - Letter to Shareholders Jan. 2018

He previously wrote in 2012;

"Today's bond portfolios, are in effect, wasting assets" 

OK Buffett is a confirmed bond basher but it's best to take advice from  someone who knows a thing or two about investing.

The low bond yields right now are not and will ever be appealing to me as a retiree.

Focus on Great Companies Instead

This is why Buffett says we hold great companies and "our favourite holding period is forever."

The value of the assets you buy is not realized until way out into the future. You have to hold for years before you even realize what's happening. 

Here's another great example of what dividend growth will do to increase your income.

Twenty five years ago Royal Bank's dividend was .29 cents. It's now $3.48. Ten years ago you could buy RY for $25. Friday it closed @ $96. Almost a 400% rise in 10 years.

Hold for the win!

Can you hang on that long to reap those types of gains in cash flow and income?

It also pays a nice steady 3.7% yield. No Canadian bank has ever cut it's dividend EVER.

This is why dividend growth investors shouldn't worry about asset allocation or diversification. Buy good companies in any industry that you know and are comfortable with and hold forever. They will deliver superior returns when compared to mutual funds, ETFs, bonds or any income fund.

My Final Take

A couple things I never do is tell people what to eat or what to invest in. I merely attempt to tell you what has worked for me, what hasn't, what I've tried and what I'm doing now.

Investing in quality companies and holding forever is what I try to do within my RRSP. Boring and a certain amount of neglect is mandatory for your success in investing for income.

Invest in bonds if you feel safe doing so but I would submit they are not as safe as advertised.

Rob Carrick's latest article on bonds and recommending a GIC ladder instead. I don't do GICs either. You can paste the link into your browser for access.

https://www.theglobeandmail.com/investing/markets/inside-the-market/article-should-you-bypass-bonds-while-you-wait-for-interest-rates-to-rise/

...or try this https://tgam.ca/2Hokn7C

It might be behind the paywall but you really should become a subscriber of G&M anyway.

Related Post: Dividend Stocks-The Gift That Keeps on Giving

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