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Thread: Allocation with some SM

  1. #21
    Senior Member
    Join Date
    Apr 2009
    Location
    Calgary
    Posts
    2,455
    If it were me, and I could cover the loan, I wouldn't care about yield - I would care about total returns.

    Your question (i) as to whether you have to many holdings, and (ii) how do you get more yield are somewhat irrelevant to the SM.

    All you have to concern yourself with is whether your investments pass the CRA 'sniff' test of generating income/revenue. I believe they have fully accepted equities as an investment fitting this category whether they currently payout or not (they can potetially pay dividends at some point, look at AAPL).

    What I would be concerned about is whether my investments are producing the highest rate of return, yield could be 0%.

    Again, this is how I would do this, and only if I could cover the loan.

    Now you might be arguing (I don't fully understand), that yield producing investments allow for an acceleration of the SM, because you are constantly paying down the mortgage with the dividends, but I've never seen a comparison of whether this method is 'faster' than buying a stock, selling it, then using the profits to pay down your mortgage so that you can borrow more to repeat the cycle. I assume that, again, total returns are more advantageous.

    For example,
    Jan 1, 100 shares BCE = $3500, 5% yield.
    Dec 31, 100 shares BCE = $3500, + $175 dividends.
    5% total return (less taxes)

    or as I'm suggesting.
    Jan 1, 10 shares of AAPL = $3500 (give me a little slack)
    Dec 31, 10 shares of AAPL = $7000
    100% total return (less taxes)

    On Jan 1 of the following year, you increase borrowing in example 1 by $175, in 2 by $3500.

    So regarding your OP, I would use the portfolio that gave me the highest returns. I personally don't believe a yield-focused approach produces the highest rate of return over time - so I wouldn't look for higher yielding investments.


  2. #22
    Senior Member
    Join Date
    Apr 2012
    Location
    Ottawa
    Posts
    103
    Quote Originally Posted by Sampson View Post
    (ii) how do you get more yield are somewhat irrelevant to the SM.
    Yield is completely relevant to SM. Every $1 of dividend gets reinvest, just round about through paying mortgage.

    You seem to be suggesting that growth stocks with little to no dividend will always outperform value stocks with significant dividends. If they do then it's a function of risk and not simply because they are "better". I believe there is evidence to suggest that value has performed better in the past, at least that is what I gleaned from reading "The Power of Passive Investing". At any rate I intend to own both, and since the SM is less than 1/3 of my assets I will simply arrange to have the value, or yield producing components there, not only for SM but for diversity.

    I thought it was evident from my OP that I aspire to be a passive index investor. By using AAPL as an example I'll give the benefit of the doubt and assume you mean I could own a bucket of stocks, which is something I may do when I have more experience.

    BTW, AAPL is going to pay a dividend.

  3. #23
    Member
    Join Date
    May 2010
    Posts
    62
    I have been using SM since 2009, fully invested in canadian dividend stocks. My potfolio has about 60% capital gain on paper, i never sold any stock, i am mainly relying on the monthly dividend check (720$) going toward my mortgage beside my bi-weekly regular payment.
    As i mentioned my portfolio is mainly dividend stocks bought them back in 2009, like BCE, FTS ,BNS, TD, ENB, REI.UN, TRP, WJX, etc.


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