My Portfolio - Seeking advice, please help

[nadreck]

Excuse me Brix but who is jumping to conclusions, my comments were not about individual securities alone but about the fact that all of the reasons stated for loving Index funds were comparisons to actively managed mutual funds where as he could compare them to securities, real estate, and a myriad of other methods of building wealth. I thought the point of view was as narrow as my analogy made it.

To someone who is immersed in the world of Ballet then country and western dance and celtic folk dance are equally irrelevant. I do not think that your analogy of saying that individual securities are like draught animals, and say real estate is like bicycles (to extend your analogy), but that actively managed mutual funds are like electric trams in comparison to cars, buses and trains of index funds is at all apt.

He points out valid differences, but pretends that actively managed funds are the only thing worth comparing. I observed that it was a limited comparison, I sought an analogy when someone challenged me on the relevance of my comment, and I stand by both the relevance of my comment and my analogy that explained the relevance of my comment.

Your analogy tries to draw one into thinking about the characteristics of a draught animal in comparison to something generally seen as faster and better. It inspires a bias, presumably deliberately, but even if not deliberate it certainly does inspire a bias. My example had no such leaning. I never said Index funds were better or worse than any of the other alternatives, and my analogy had no such connotations that I saw.

This is making a lot of an issue as to whether my comment about the lack of vision in the list of reasons why someone liked Index funds that only sought to bolster the case for Index funds against actively managed funds. I think if someone only examines them in that light then they are making decisions based on very incomplete knowledge. I would consider it incredibly slopy due dilligence on the part of any investor to examine two investment vehicle types and make all their investing decisons based on only their analysis of those two types. What if the two types in question were checking accounts and savings accounts?

[Norbert Schlenker]

all of the reasons stated for loving Index funds were comparisons to actively managed mutual funds

I can see y'all are having some fun but perhaps someone should say that the original link was to a post in a thread on a board at Morningstar. You know, the mutual fund rating people.

[ghariton]

Add I index because I do not know how to pick stocks consistently well or do not have the time to do so or do not have the inclination to learn.

Note that the I is not me.

I'll take the first third of the statement as an adequate description of me, and perhaps part of the second.

I've seen good fundamental analysts at work (for their own portfolios -- they had real day jobs). One was spending so much time on what had become an all-encompassing hobby that he almost got divorced.

Georges

[eric]

Hi,

I've been lurking here for a while - was directed here by a member of the Retire Early website (NFS?).

I'd be interested in hearing feedback on my "early retirement" portfolio. This portfolio is where I am doing my higher risk investing and is outside of my RRSP (which is maxed out anyways).

My primary goal is to achieve regular, long-term stable income with a yield of between 6% to 8%. Not sure it matters, but I'm 32.

As can be seen, I have quite a few income trusts which is making me slightly nervous with the noise coming from our esteemed Liberal gov't. However, I'm not nervous enough to jump yet and plan to hold on. I'm betting the gov't will take the route of reducing the double taxation on dividends.

The only holding that I would consider a true business trust is Sleep Country, but I really like the company and like the way they operate.

About 1/5th of my current portfolio is CIBC, which I snapped up at $70 (which gives me a yield of 4%). It just seemed like too good of a deal to pass up.

ALGONQUIN POWER I/F T/U L 376 shares
CDN IMPERIAL BK COMMERCE L 146 shares
ENBRIDGE INCM FND ORD T/U L 131 shares
PEMBINA PPLN INCM FD T/U L 106 shares
PENGROWTH ENERGY-B T/U L 600 shares
RIOCAN R/ESTATE INV T/U L 373 shares
ROTHMANS INC L 41 shares
SLEEP CTRY CDA INC FD T/U L 281 shares
SUPERIOR PLUS INCM FD T/U L 190 shares

Anyhow, just like to see what people think and whether I am missing something.

[nadreck]

My primary goal is to achieve regular, long-term stable income with a yield of between 6% to 8%. Not sure it matters, but I'm 32.

Given that I presume that you see at least ten years elapsing before your early retirement, why do you have a goal today for a particular cash yield? this yield is costing you tax your marginal rate. My comment is that I would focus on overall return including the tax consequences of any income generated since it is not in your RRSP.

BTW congrats at maxing your RRSP out at this age. I wish I had started to do that at 32 rather than 38.

Your portfolio suggest you are a strong believer that energy prices are destined to average their current price or higher over the forseeable future (as do I) but I am pointing that out as a risk.

You could add alchool, food and beverage to that list easily. You might find some other sectors that you find you are comfortable investing in.

I would comment that a really good market fluctuation (which many people believe is just around the corner) could knock 30% or more off that porfolio in a couple of days. As long as you are prepared for that eventuality and can respond not with a knee jerk reaction but simply fit it into your plans, I don't think you are missing anything important.

[yielder]

My primary goal is to achieve regular, long-term stable income with a yield of between 6% to 8%. Not sure it matters, but I'm 32.

It's always a trade off between higher current income/lower income growth and lower current income/higher income growth. There are exceptions but in general that applies. Riocan is a great stock but its distribution growth has been 3.8% annually. GWO, as an example of income growth, has had dividend growth of 21% annually over the past 5 years.

Being 32 matters a great deal because you have time, ie, compounding, working for you. I would be less concerned about high current income than I would about sustainable high income growth.

I'd also try and get a more diversified than you are.

[eric]

Gents,

Thanks for the feedback.

I guess I should of specified that these investments are not held personally, but inside my corporation. I realize that there are still tax implications, but I have a bit more latitude.

No real reason for having a specific yield in mind, just that it helps me in forecasting how much cash I will need invested in order to provide a certain level of retirement income.

Nadreck, I am no market expert but with emerging middle class in China and India, I can't see energy prices going anywhere but up. Even if we see a large shift in U.S. driving habits and vehicle purchases, the fact that the Chinese car market is growing at something like 80% year will simply suck up any spare capacity.

To boot, I think we're not that far off from discoverying some pretty nasty surprises from the Saudi oil fields.

Yielder, thanks for the advice. I have been trying to force myself to look at lower yielding stocks that have better growth. CIBC is one such stock. Although yielding only 4%, it has been growing by leaps and bounds, so after a few years the "effective yield" (if I can use such a term) will be quite nice. I guess I should be looking for more stocks such as this.

[Shakespeare]

Although yielding only 4%, it has been growing by leaps and bounds

CM tends to be more of a "leaps and splatters".

[yielder]

Nadreck, I am no market expert but with emerging middle class in China and India, I can't see energy prices going anywhere but up. Even if we see a large shift in U.S. driving habits and vehicle purchases, the fact that the Chinese car market is growing at something like 80% year will simply suck up any spare capacity.

Do some reading on the 1992 recession. The fat years since then have made us all forget what can happen. With the global integration that exists today compared to 1992, a recession today will be global with a distinct possiblity of it being deep and long (which country will be the engine that pulls all out of recesssion?) India and China will be particularly hard hit because their infrastructures are still relatively undeveloped. What could cause recession? The same things that have caused recession in the past - high oil prices, high consumer debt, rising interest rates, an economic shock.

[yielder]

I have been trying to force myself to look at lower yielding stocks that have better growth.

Carrick calls it stealth yield.

[eric]

I would think that China and India will suffer in the next recession more because much of their wealth is derived from Western outsourcing.

In my business, when a client wants to go to hard tooling (plastic, die-cast) it immediately goes to "mainland" a.k.a.: China. Meanwhile, India is getting the I.T./call center work. If we see a Western-initiated recession, we will likely see the impact in these two emerging nations.

However, one could argue that in the case of India, a recession would only accelerate the transition of I.T./call centers as companies would be more tempted to close North American offices and keep the India offices open.

Regardless, sooner or later there is going to be a another recession, and it will surely temporarily depress the price of NG/Oil, but I still think the long term trend can only go up.

Do some reading on the 1992 recession. The fat years since then have made us all forget what can happen. With the global integration that exists today compared to 1992, a recession today will be global with a distinct possiblity of it being deep and long (which country will be the engine that pulls all out of recesssion?) India and China will be particularly hard hit because their infrastructures are still relatively undeveloped. What could cause recession? The same things that have caused recession in the past - high oil prices, high consumer debt, rising interest rates, an economic shock.

[beaverlodge]

With the population of India and China each in the billions and with an emerging educated middle class in both those countries offset against an increasingly indebted U.S the economic outcome whether negative or positive, or the timing of such an event is pure speculation.

And the impact on Canada, whatever it is likely, the northern neighbour to this indebted and troubled nation, is also pure speculation.

[moonman]

With the population of India and China each in the billions and with an emerging educated middle class in both those countries offset against an increasingly indebted U.S the economic outcome whether negative or positive, or the timing of such an event is pure speculation.

And the impact on Canada, whatever it is likely, the northern neighbour to this indebted and troubled nation, is also pure speculation.

Tomorrow is pure speculation.

[Lyndon]

Eric with all due respect I am absolutely shocked at the crappy advice you are receiving, your portfolio is loaded with income trusts ( read-small cap EQUITIES !!!! ).You need to go back to basics, design an asset allocation strategy, STICK WITH IT,stocks vs bonds etc.Relevant issues are your age ,risk tolerance,investment goals etc. A good place to start is Shakes primer, are you sleeping well now with the market meltdown ???If you like gambling go to Vegas,be very careful with you hard earned CAPITAL.

[Shakespeare]

design an asset allocation strategy

Eric's first post makes it clear he also has an RRSP, that is maxed out. His portfolio risk can only be determined if that is included.

At his age, he can tolerate greater risk on the equity side, if he has the stomach for it. But trusts may be a tax-inefficient way to do it [depending on the tax structure], since he doesn't need income and the ongoing tax drag from distributions reduces the compounding.

[Springbok]

Eric with all due respect I am absolutely shocked at the crappy advice you are receiving, your portfolio is loaded with income trusts ( read-small cap EQUITIES !!!! ).You need to go back to basics, design an asset allocation strategy, STICK WITH IT,stocks vs bonds etc.Relevant issues are your age ,risk tolerance,investment goals etc.

Eric,
You could choose a conservative diversified portfolio, but at your age, your allocation should probably be mostly equity. I would not diversify too much, but rather take a bet on what you think will do well. This seems to be energy.

For the actual portfolio (which is not yet too large), I would not choose many actual stocks and trusts, but rather use a combination of ETF's and to use diversified trusts, if trusts are to be inculuded.

Something like XFN for financials, XIU for the overall market, XSP for US market, SIN.UN for trusts in general and OGF.UN or AOG.UN to boost the energy content or XEG if exposure to majors is preferred over the trusts.

Remember that at 32, many trusts only have reserves of about 10 yrs, so unless they buy juniors at the right prices, they will eventually start to deplete their reserves. It may be better to be into majors (or trusts with longer RLI - not many in that category - Peyto, COS are two that come to mind).

You may even want to invest directly in real estate for your business. I know of many small businesses that did this, and when they wound up or sold, this was the only real value they got out of the sale.

Good Luck Eric. At 32, lot's of time to tinker with portfolio. I would try to keep on top of it - I ignored my investments for many years because of pressure of work and paid a price.

[yielder]

Eric with all due respect I am absolutely shocked at the crappy advice you are receiving, your portfolio is loaded with income trusts ( read-small cap EQUITIES !!!! ).You need to go back to basics, design an asset allocation strategy, STICK WITH IT,stocks vs bonds etc.Relevant issues are your age ,risk tolerance,investment goals etc. A good place to start is Shakes primer, are you sleeping well now with the market meltdown ???If you like gambling go to Vegas,be very careful with you hard earned CAPITAL.

There's nothing to indicate that he hasn't done everything that you're suggesting here. If he hasn't, he needs to.

You're correct that this portion of his portfolio is dominated by trusts but without knowing the entire portfolio it's impossible to tell whether that's an overall probem.

Assuming that it's not, all we can do is respond to his statement "My primary goal is to achieve regular, long-term stable income with a yield of between 6% to 8%."

[beaverlodge]

Eric has disclosed only a fraction of what is required for anyone to offer any advice on his long term planning objectives.

He is asking opinions about the mix of trusts that he has and his hope for a target on returns.

[Ken]

was directed here by a member of the Retire Early website (NFS?).

Could you point me to that website please, Eric?

As for the advice about your portfolio, I'm with the folks advising diversification and index funds. 8 or 9 ETF's and some RRB's and you're done. Got the whole market at low cost.

[gossg]

Gents,
these investments are not held personally, but inside my corporation. I realize that there are still tax implications, but I have a bit more latitude.

Be careful that you're not undermining the "limited liability" rationale for incorporating. If your corporation holds both your investments and your income activities, then a lawsuit from the consulting (or whatever) can attach to your retirement savings.

If you're going the holding company route, it has to be separate from any liability containment incorporation. I'd be interested in seeing a discussion of the tax implications of encapsulating your retirement savings into a corporation, but that probably deserves its own thread. Indeed, with my intermittent reading on this site, it may already have its own thread.

[AltaRed]

was directed here by a member of the Retire Early website (NFS?).

Could you point me to that website please, Eric?

As for the advice about your portfolio, I'm with the folks advising diversification and index funds. 8 or 9 ETF's and some RRB's and you're done. Got the whole market at low cost.

Ken, try this http://www.early-retirement.org/forums/index.php

It's US based but while the financial threads don't help that much, Retire Early ideas and non-financials are quite good (a few posters excepted).

[la principessa]

Here’s what I’m thinking for an initial investment of $150,000 in taxable assets. Tell me what you think. (I’m not eligible yet to open a tax-advantaged retirement account, and will have a hefty foreign tax credit when I collapse a Canadian RRSP this year.)

$50,000 - fixed income – ING for now
$100,000 – equity (objective: growth) using ETFs as follows:

$40,000 - U.S. sectors: real estate, energy, health care, financial
$30,000 - Canada, Latin America, Emerging Markets
$10,000 - EAFE
$10,000 – Gold (track bullion)
$10,000 – Natural resources (global energy)

[brucecohen]

How's it goin LaP? Have you thought about starting a blog for other Canadians thinking about heading south?

I can't comment on your asset allocation, but wonder why you plan to collapse your RRSP? You can keep it tax-sheltered under the US-Canada tax treaty. If you convert it to a RRIF you can gradually draw down at 15% withholding tax, creditable in the US.

https://secure.globeadvisor.com/servlet/ArticleNews/story/gam/20050205/STCESTNICK05

[la principessa]

Hi Bruce, things are going well. The reason I don't blog is because there are so few people in my situation: an American returning to the U.S. after decades, who also became a Canadian citizen. Unlike most Canadians, I have no immigration or green card issues. However, I don't want to be taxed at Canadian rates, so I'm jettisoning all "close connections" except life insurance.

Even if I left my RRSP in Canada, I wouldn't be able to trade because I'm no longer a resident. But if I withdraw everything now, there's a withholding tax of 25%, a low rate compared to what could be waiting for me down the road. At the same time, I'll have enough of a foreign tax credit to owe Uncle Sam nothing for awhile.

The biggest obstacle has been proving my identity. Even with a Social Security number, U.S. passport, Ontario driver's license, credit history with Equifax Canada, I was turned down for a J.C. Penny credit card. I was also denied an IKEA card even though I had one in Canada.

It's an arduous process to re-establish because U.S. credit agencies don't care about Canadian ones and refuse to check. (I already tried.) It's also a nightmare opening a bank account without solid proof of address and I was turned down by Bank of America last summer. I got lucky with a small town savings bank where everybody knew my mother and they did me a favour. Even TD Waterhouse was difficult without a NJ driver's license. And getting a license is the most difficult hurdle in a post 9-11, identity theft world.

[brucecohen]

I hear what you're saying but:
-- CRA won't deny you non-resident treatment if you've simply left an RRSP/RRIF intact
-- It's not necessarily true that you can't trade. That used to be the case but there has been substantial relief worked out in recent years. I don't remember all the details but I recall that the SEC has adopted a reasonable basis that applies on a federal basis and the situation varies from state to state. Have you raised this with the company that now holds your plan?
-- I don't see how you'd face a higher tax rate down the road since the 15% withholding rate applies to RRIF withdrawals of up to twice the minimum for each year. Since the minimum is based on a percentage, the 15% rate would apply to even very high amounts.

You might have better luck getting a credit card if you appeal the rejection in writing to the VP of the credit card division. This is a very, very old story and things may well have changed but......

Circa 1974 I returned from Peace Corps service in the Pacific, spent a few months doing casual work at Voice of America and then landed a job with ABC News that paid the equivalent of $100,000+ in today's money. I had no debts. I was amazed when my application for the forerunner of today's Visa card was rejected. So I got the name of the VP and wrote a letter. He phoned a few days later and apologized profusely. He explained that, to avoid charges of racial bias etc, application processing was completely automated and the computer rejected me because I didn't meet the prior residence requirements. (He said he had the same problem with an application submitted by a criminal prosecutor who had just moved to DC after being named to head a new organized crime strike force for all of the police agencies in the region!) He offered to send a card by courier if I still wanted one. It arrived with a note pointing my attention to a code on the card that indicated I was a preferred customer. My cousin, who was IT chief for Saks Fifth Avenue in the '70s had the same problem with several mega-rich customers who had no fixed address.