That's provided they need to draw down capital to meet expenses. If they have a stream of income which more than meets their needs than the value of their investments going up or down will not effect that income stream.
Originally Posted by anon125
True, but few people have the resources to simply rely on the income stream and hence that info is not helpful. The vast majority have to draw down capital. Hence all the discussion about having a balanced portfolio to avoid (minimize) drawing down equity during a dive in the markets.
Originally Posted by canew90
Even if they have sufficient cash flow to cover living expenses, they may have to draw down capital just to pay the taxes on their RRIF withdrawals. The reduction in the minimum withdrawal rate has however helped. Every situation is different, so no 'one size fits all' for retirees.
Originally Posted by canew90
PH&N Bond D - PHN110
Not clear to me what this means, but I'm sure management is trying to reassure investors.
Snip from 2016 year-end management overview:
"While the pull-back in returns in the
fourth quarter was extensive, the Fund still
managed a modest positive return for the year,
and is now in a better position via a higher yield to
provide a higher level of income going forward.
Ultimately, higher yields will benefit the Fund and
its investors over the long term."
The 30-month moving average is still holding as support.
- chart from Globe-and-Mail portfolio:
- the Morningstar view:
I have moved a lot of my portfolio to preferred shares . I am retired and invest 100% in fixed income. There are some relatively safe preferred share options that provide a dividend much higher than the present gic rates. One example is CGI.PR.D. It has a retraction date of June 15 2022. The yield to maturity is approx. 3.4% and the DBRS rating is Pfd-1L which I believe makes it the highest rated preferred share in Canada. I only look at specific preferred shares and do not buy the ETFs which can have more volatility in some cases.
The real question is -- what is the total amount of cash you will have to have to draw out of the portfolio? This level of withdrawals makes a big difference.
Originally Posted by canew90
I've posted some details here about my thoughts on the math. If you're withdrawing about 2.5% or less (initial amount plus annual inflation adjustment) then you can keep all the money in stocks and live off the dividends or sales. I say, just put it in XIU and live off the dividends forever and pay zero tax.
However as you approach 3% or higher, it would be reckless to keep the money 100% in stocks. Instead, you need a diversified portfolio like a balanced fund that has less volatility. Otherwise, sequence of return risk will threaten to deplete the portfolio.
Many people in these forums seem to be under the impression that if your 4% withdrawal comes in the form of dividends, then it's sustainable forever. This is true if you are NOT inflation adjusting the withdrawals, but if you mean 4% of initial value + inflation adjustment, then the research in this area is very clear ... you need a diversified portfolio like 50/50 or 60/40.
If you really want to live off a stock portfolio with dividends, you can do it if you don't plan to steadily increase withdrawals with inflation. You can also do it if you are willing to just stick with the dividend level even in years that the dividends contract and provide less than you expect. That's sustainable because you're accepting reductions of the withdrawal amount. But then you should ask some serious questions like, what will happen in those years where the income stream contracts -- perhaps dramatically. Can I really survive on that?
Last edited by james4beach; 2017-03-23 at 03:54 PM.
Yeah, if you want to stick to 100% fixed, it's a reasonable move to boost your income with preferred shares. There aren't many retractables left unfortunately, and as such, their yield is rather low, but certainly higher than GIC's, so they're a worthwhile addition to juice returns for income investors. The straights have wonderful cash flow, but if absolute capital preservation is a concern, you of course would avoid that route in anticipation of higher interest rates in the future. There are also the new minimum fixed resets to consider as 5 year money compared against GIC's. Most don't boast Pdf-1L, but a tiny portion of these (i.e. TRP.PR.J) wouldn't hurt either.
Originally Posted by Brin68
Except a lot of stocks have dividend growth, so that dividend stream will grow somewhat as well. No assurrances of growth equal to or better than CPI inflation, and sometimes a decrease of course in an equity market crisis, bit the overall trend is up.
Originally Posted by james4beach
AltaRed...the secret word...dividend growth...makes inflation go away and the living easy. But most would not believe people claiming yield on costs with blue chip companies over 10% and growing 8% faster than inflation. Better to lose money guaranteed.
Yield on cost is meaningless. Never have calculated it, never will calculate it and never will conduct a conversation with anyone about it.
Originally Posted by Eder
What really matters is the growth in the overall dividend stream in the recent past and going forward, I will happily discuss that. XIU is not a bad proxy for dividend growth stream for the past 10 or so years. Financials have done well while resources have not while back in the last decade, resources did well in the super commodity cycle. At least some diversification there to avoid biased cheerleading.
http://www.dividendchannel.com/symbol/xiu.ca/ has a pretty neat chart (and table) to show the overall trend...mostly trending up with some hiccup years but essentially a doubling of dividend in 17 years (2000-2016). Not shabby at all.
Added: I hopefully have about 20 years of investing life left in me before I start taking a fork in the road. I certainly can live with a doubling of my current dividend stream over that period of time.
Last edited by AltaRed; 2017-03-23 at 05:37 PM.