# Investment Plan for Seniors



## leeder (Jan 28, 2012)

My uncle and aunt, who are in their 60s and retired, found out about my 'enthusiasm' for investing and approached me recently for an investment plan. I would characterize them as pretty conservative investors. Majority (probably 80%) of their RRSP is in GICs, which pay them very little, with the remaining in TD Canadian Bond Index fund (and not the e-series one!). However, they are worried that the current investments won't sustain them down the road and want to look at the stock market.

They are in the process of opening a TFSA account (along with the normal nonregistered) with TD Waterhouse and will be putting in 15k in the TFSA and about 36k in nonregistered. My aunt is gungho about dividend paying stocks, particularly bank stocks; however, I have told them about diversification.

Here are my thoughts:
- Split the 36k into 9 high quality dividend paying stocks in various industries (4k each, probably in TD, FTS, AGU, ALA, CVE, CNR, MG, PPL, BCE)
- Split the 15k in TFSA. 10k in XWD and 5k in the new ZDY (BMO US Monthly Dividend)

I would like some suggestions. What are some other ways for them to diversify? What other lower risk stocks can you suggest? I also want to reduce complexity related to tax as much as possible. They are not likely to track the ACB...


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## lonewolf (Jun 12, 2012)

If it were me I would make sure the core of thier portfolio the Gics were laddered & when they matured were put into the credit unions most likely virtual in Manitoba that payed the highest rate. They might want to get a portion of the GICs that pay yearly instead of @ maturity. Sometimes they offer ones that pay monthly.

I would not touch bond funds to much overlap with the GICs & I would limit the risk incase interest rate rise & safe the speculative money for putting on the stock market table. I would not increase the bet size on the table for the stock market just because the risk was taken out of the game with bonds.

Investors often hear the words bonds & or Tbills & falsely think those investments are safe. You dont want them to have a false sense of security.

Perhaps they want to diversify the price they pay for the stocks & buy them @ differnt price levels ?


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## My Own Advisor (Sep 24, 2012)

I like the idea of dividend paying stocks, but I'm not sure if that alone with few assets is good enough. Do they have pensions? Other types of fixed income? How are they sustaining themselves now?

If they are not likely to track ACB, stick with maxing out TFSA or keeping stuff in RRSP until converted to a RRIF.


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## leeder (Jan 28, 2012)

@ lonewolf: Currently, I would say the core of their portfolio are GICs. They do not have it laddered, unfortunately. I have told them to do so, so that they get a higher rate after 5 years. However, my uncle doesn't have the big picture in mind and believes that it's better if they do it one year at a time. I think their highest rate is probably around 2.1%. Regarding the credit union, I'm not sure they would be into it. They are older, so their view of technology and the virtual world is one of cynicism. Convincing them to open a discount brokerage account with TDW was already as far as they would go...

@ My Own Advisor: Good questions. I believe they get some income from various pension payments and old age security. I don't believe it's a whole lot. Their children also chip in a total of 25k a year to them. I would say this about my uncle and aunt -- they have lived frugally through the years, and they don't have any debt (major plus!). They aren't in desperate need of money today, but they are concerned in future years, especially since their RRSP investments give them very little return. Regarding the ACB, they probably won't DRIP their investments (except the ones inside TFSA) and they probably will withdraw any dividends received. That's why it's especially important for them to invest in high quality stocks that keeps raising the dividend.


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## lonewolf (Jun 12, 2012)

Leeder

The virtual credit unions I have looked into do not pay dividends but the bricks & mortar do. I asked several credit unions who hystoricaly made more in interest the GIC in the bricks & mortar or buying with virtual & all of them told me the same that it works out to almost the same when dividends are taken into account. (the dividend is not garanteed) The Manitoba ones said they do it to get people that are out of province & can not come to the credit union. Being senior the fees are often dropped @ CU & GICs are sometimes offered as far as 7 years out.


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## dubmac (Jan 9, 2011)

You could put 36K into an account and buy FIE - an Ishares Monthly Can. Financial Income Fund - 
It is fairly stable - goes up and down with banks. The MER is around 1%
It trades around 6.57 now, and the distribution is 0.04 per month per share.
36K would buy 5480 units - which would produce $220.00 per month.
Arrange the bank to direct the $220.00 directly into their bank account to help pay for monthly expenses.

The nice thing about this one is the income is pedictable, and monthly (not quarterly) - but it is not without potential changes to distribution, and it does fluctuate.


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## Soils4Peace (Mar 14, 2010)

+1 to max tfsa and rrif.

How about 10% AA to ZRE and 10% to real return bonds. Medium duration individual munis aren't bad either.


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## fatcat (Nov 11, 2009)

i would put the money into a small cap growth etf (like vanguards VB with an mer of .10) and something like qqq (or zqq)
if the bulk of their income is in gics
and they are getting into the market for growth i see no point at all in buying dividend stocks
they need growth stocks


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## lonewolf (Jun 12, 2012)

One of the best investments they could make is to invest the time to know exactly where they stand financialy & calculate the exact amount of money coming in, going out & net worth.

Going over expenses you never know you or them might see a way of streaching those dollars. Most people dont realize they are waisting money somewhere. Going over all money going out with a fine tooth comb & looking for where costs should be cut could make a huge difference. (watch those banking fees) They would also have a better understanding if they need to go back to work for awhile


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## leeder (Jan 28, 2012)

@ lonewolf: What kind of rates are these credit unions paying? I guess for them it would be the opportunity cost. Because most of the GICs are in their RRSP with different maturity dates, they would have to transfer in kind. Banks may then charge them a transfer fee. However, their GICs are yielding them at around 2% annually. Even if they do trust these credit unions, I wonder how much higher these credit unions would pay in terms of interest. As for your other point in regards to expenses, they've been pretty good with saving and not spending. Their main and most common expense would be groceries and utility bills. I've never heard them run >1,000 credit card fees.

@ Soils4Peace: They will be maximizing their TFSA. They currently don't haven't set up a RRIF yet, as they have enough money in their savings account not to draw down on their retirement savings account. As for ZRE, I have considered that. However, I am trying to diversify their investments as much as possible to include US and international equities.

@ fatcat: I disagree that there's no point of buying dividend stocks. As mentioned, my uncle and aunt are conservative and essentially would use the dividends to supplement the low interest generated from the GICs. Essentially, they want to be more income investors than growth investors. If anything, I would think they would lean towards low volatility ETFs that pay distributions. Thanks for the suggestion though!


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## fatcat (Nov 11, 2009)

leeder said:


> Essentially, they want to be more income investors than growth investors.


but they already ARE income investors by holding a GIC portfolio ... 

the main reason to enter the market is to offset the erosion they face due to inflation ...

growth oriented companies are going to give them the inflation beating returns they need to offset an almost all gic portfolio ... 

if you are talking about putting 50% into gics and 50% into dividend stocks this makes sense but to put 80-90% in gic's and the rest in dividend stocks which by definition are not growth makes little sense ... you miss out out the very growth that they seek by entering the market

if they are really conservative, a really good laddered gic portfolio through a gic broker combined with say 10% in aggresive growth stocks would be the ideal plan

if you want into the market, then get into the market with both feet, there is a way to do that and still return their gic principal, dividend companies are not going to give you the offsetting growth you need by taking some market risk

nevertheless, it's your call, good luck


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## My Own Advisor (Sep 24, 2012)

Dividend stocks should provide them with income, but it must be a balanced approach IMO.

Assuming they have some pension income, I think it would be important to determine if they are dependent outside pensions for income, for living expenses. If so, then that money should be invested broadly, and avoid undue risk, with a steady income component. Put money into some dividend ETFs and some laddered GICs.

If they do not / must not rely payments outside pensions for living expenses, I suspect they can be a bit more bold using dividend-paying stocks as you have suggested. This way they get mostly income and some captial appreciation over time but of course they are taking on more risk. 

Once they figure out what they need (in terms of income, how much, how often), then the products should follow. 

If they are to go with some CDN dividend payers, I think TFSAs are a good home for these folks. 

I think it's a pretty darn good home for my holdings as well.


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## lonewolf (Jun 12, 2012)

Leeder

Can often negotiate fees with both from the instution the money is leaving from & the instution the money is going to.

Many instututions will hold rates for x amount of time i.e., month or what ever. Before GICs mature it is good to lock in rates ahead of time because if rates rise in the meantime the credit union I have delt with will give you the higher rate of the 2 rates. If rates drop you get the higher locked in rate.

Banks charge high fees About a year ago I think it is $100 to transfer money in a registered account to another. Credit unions $50. Best to ask the for the fees

Some credit unions will pay the $100 fee if the transfer is large enough & a portion of the fee based on the amount of money being transfered. (the more money the higher the percentage)

If an investor is putting money into GICs in especialy in small amounts they should be concerned with these fees & go with a financial instution that has a good track record of paying good rates. When its time for rollover you want to put the odds in your favour of a high rate to avoid the transfer fees for registered accounts TFSA & RRSP.

Credit unions have a better track record of paying high rates & Manitoba seams to always be @ or near the top. Virtual credit unions pay the highest & have not been around long but the odds are high they will pay a high rate compared to other instutions because the bricks & mortar parents of the virtuals have had a good record.

To find a list of rates google glob & mail interest rates or GIC rates 

Virtual credit unions Manitoba (spelling of names may be out a little)

Achieva, accellerate, Maxa, outlook

1yr 1.95%
2Yr 2.15%
3yr 2.3 %
4 yr 2.7
5 yr 2.7
6 yr 2.75 was either achieva or accellerate
7 yr 2.8 % was either achieva or accellerate


Hubert
2 yr 2.25 %
3yr 2.45 %
4yr 2.6 %
5 yr 2.85 %

People trust (dont know type of financial instutition) TFSA 3%


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## james4beach (Nov 15, 2012)

The situation you describe is a very common story. This is going on in my family as well. I have spent a lot of time thinking about this, and modeling various strategies.

In short, before my very long post: invest in (a) a GIC ladder, and (b) a total of three or four low-MER ETFs. That's all!

My solution is motivated by simplification and lowering costs. Wherever you can, minimize your MERs. I also operate with the premise that many investments amount to more or less the same thing. (This is somewhat controversial). For instance, "high dividend stocks" just pay out a lot of earnings in cash, that other stocks preserve in retained earnings & internal reinvestment. The total return would be similar, whether they're paying dividends or not. I suggest reading this excellent article, The income illusion (moneysense)

Other influences on my strategy have been
1) Warren Buffett's text in one of BRK's annual reports, where he makes a strong point of tapping into equity wealth by selling off shares as you need, as opposed to high dividends
2) The way an insurance company's "annuity" retirement product works, which is pretty much what I'm duplicating here, though with MUCH lower fees
3) The discovery that 'income' mutual funds, including ETFs, actually play very tricky games with return of capital. In many cases it creates the illusion of high returns. I want to avoid all these tricks so I stay away from funds that have return of capital.
4) My own research over the years that shows that most sectors and ETFs have very strong correlation to the primary broad indexes, that is, nearly everything tracks the TSX and S&P 500 (almost everything is a duplicate)

I suggest a solution consisting of a GIC ladder (stretching out 5 years), stocks (ETF or index funds), and some bonds. As lonewolf suggests, I would put more in GICs than the bonds. Figure out what % in each of these would suit the owners. In nearly every case, I would say the GIC portion should be larger than the stock portion.

*Here's the key part:* in retirement, once you start needing the investment cashflow, that cash is going to come from a combination of the investment income (GIC interest & stock dividends) plus the sale of stock shares.

In the years leading up to retirement, they don't have to sell shares. The share sales start when they need more cashflow in retirement. This is exactly what happens in a structured investment product like an annuity. At these low interest rates, you're simply not going to get enough interest income. Or dividends (see the moneysense article; getting cash via dividends is fundamentally equivalent to cash via selling shares).

The structured products, like FIE, XTR, or 'monthly income funds' (extremely popular) do exactly the same thing. They sell off shares to produce income. And you pay them an enormous amount in fees for that work, plus these things tend to be opaque.

The stock portion should hold the simplest, lowest-cost index funds or ETF. Something like:
* Canada: XIU, VCE, or ZCN
* USA: SPY or IVV
* Other international: not sure, maybe EFA

So the total stock holdings would literally be three broad ETFs. Maybe four (if you really want to throw in extra exposure somewhere). That's all! I seriously would not exceed four ETFs in the whole investment plan.

You're going to wonder, where are all the special stocks and ETFs, the bank index, REIT index, dividend funds, etc? My strategy is to stick with the lowest fee ETFs. My belief is that everything else correlates and more or less duplicates these, and I think the total return of the broad indexes will be fine in the long term.

I believe that the savings from the low MER will be significant over the long term. Limiting the number of stocks also keeps your paperwork simpler. It's also very transparent and easy to manage.

You would simply maintain that small number of stocks (ETFs) along with the GICs and minimal bond ETFs. In retirement, shares would be sold quarterly which minimizes transaction costs. Cash from the sales goes into a savings account to buffer the cashflow... there's no particular to reason to sell every month.

My overall message is that investing for retirement MUST involve selling off shares to raise cash. If you don't do it directly, as I propose above, you're going to be doing the same thing indirectly and either paying more in fees, or with a lot more hassle (e.g. maintaining 30 individual dividend paying stocks).

Final note: tread carefully as it seems they've become interested in the stock market right when the S&P 500 reached a new all time high! Whatever your plan, don't go into stocks all at once in order to avoid the possibility of buying right at the top. Phase into stock positions over perhaps 1 or even 2 years.


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## james4beach (Nov 15, 2012)

Specific nit-picky comments, in additional to my huge post about what I would ideally do.



leeder said:


> . . . and will be putting in 15k in the TFSA and about 36k in nonregistered. My aunt is gungho about dividend paying stocks, particularly bank stocks


That's a small amount of capital. I hate to say this but with that little capital, you're not going to get anything significant in dividends. It will be peanuts. You really have to be selling shares to make any significant cashflow.



> - Split the 36k into 9 high quality dividend paying stocks in various industries (4k each, probably in TD, FTS, AGU, ALA, CVE, CNR, MG, PPL, BCE)


That's going to be a real pain to manage long term, in my opinion. Also a small amount to bother with 9 individual stock positions... you really should use an ETF.



> - Split the 15k in TFSA. 10k in XWD and 5k in the new ZDY (BMO US Monthly Dividend)


I don't recommend getting into new funds until a full year has gone by, because you should see their distribution characteristics. Many of these new "monthly" ETFs have a lot of return of capital, which is a problem.


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## james4beach (Nov 15, 2012)

If you're opening a TD Waterhouse account, you can (under 'fixed income') shop around for GICs inside there too. You'll have to phone to actually purchase it though.

I've seen pretty good rates in there. You can look at different issuers and rates. This all in one view should help you build the GIC ladder, I think.

I'll repeat my view again that I think you should be focusing on low MER funds. I wouldn't bother with any dividend ETFs. The reasons being that those MERs are higher, and secondly I don't see any reason that the total return from the dividend ETF would be better than the broad market index. And you will have to be selling shares anyway, so it doesn't matter whether the stocks pay you dividends or not.


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## james4beach (Nov 15, 2012)

As a further attempt to keep you from joining the "dividend stocks" (or dividend ETF) bandwagon, see this article:
http://seekingalpha.com/article/1041571-higher-dividend-stocks-are-inferior

He compares the oldest US dividend ETFs with the longest track records, to their equivalent broad market indexes. The comparison shows that over this long period, the dividend stocks underperform the broad index. You would be better off in the regular index, which gives you a greater total return.

Fund companies have been very heavily marketing dividend funds lately... they're tremendously popular. As such you'll tend to see comparisons based on the last 4 or 5 years, coinciding with the start of the popularity. With this framining, the dividend stocks look like big champs.


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## leeder (Jan 28, 2012)

Thank you for your posts, james4beach. I appreciate the detail and time.

I think for them, the key is to generate income to supplement the low returns from GIC. You make a valid point about the whole selling of shares to get capital, as I kept thinking that they should keep the investments as they are and just let the high quality companies that keep raising the dividends do the job, and then sell the stock only either for rebalancing or for a lump sum cash amount. Also, I'm thinking about the complexity of taxes. They do their own taxes every year, and I want to minimize the complexity (i.e., consider ACB, ROC, etc.)

In regards to the 15k in the TFSA, they already have about 10k sitting in a 2.55% TFSA account with Canadian Western Bank. They don't want to put the entire amount into the equity market, especially since they are retired.

How would you allocate the money to each of the low MER ETFs based on 15k in TFSA and 36k in non-registered? Their RRSP is essentially already composed of GICs, so we can ignore the whole laddered GIC approach for now (although I still need to convince them to do the laddering).


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## Spudd (Oct 11, 2011)

Since they are 2 people, they should have 51k in TFSA room. I would utilize all of that instead of keeping 36k in non-registered. That way, they don't have to worry about ACBs, taxes on dividends, etc. They would just need to keep track of the withdrawals/contributions to the account which should be much easier.


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## james4beach (Nov 15, 2012)

Good point from Spudd about the total TFSA room... make maximum use of the TFSA. 

For the parts in a non-registered account, you're going to get ACB tracking headache from a few things: buy/sells, return of capital, reinvested distributions. In my experience the buy/sells are pretty straightforward, but the ROC & reinvested will give you endless headaches.



> How would you allocate the money to each of the low MER ETFs based on 15k in TFSA and 36k in non-registered?


If you're referring to the low MER ETFs I sugested combined with selling shares to raise cash later, and assuming you mean putting this entire amount in stocks... here's a suggestion based on your account sizes. This is along the same lines as your original idea (note that XWD holds XIU, IVV, EFA)

nonreg: 30k XIU - (tsx) Canadian index
nonreg: 6k EFA - (us) MSCI EAFE
tfsa: 8k IVV - (us) American S&P 500 index
tfsa: 7k ZUT - (tsx) utilities, or other Cdn high-div, maybe ZRE

It could be a very different picture if you're able to get more TFSA room. Also I'm focusing on the low maintenance, low hassle priority. Having minimal positions will save you trouble, long-term. And I think you will really win with the low MERs.

XIU actually produces pretty good dividends, around 2.9% yield I think with very favourable tax treatment. It has minimal RoC and hasn't had a reinvested distrib in a long time.

EFA will have some dividends withheld, but I believe this is recoverable as it's a US ETF in a taxable account.

ZUT (or ZRE, etc) definitely goes in the TFSA due to all the RoC.


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## leeder (Jan 28, 2012)

@ Spudd: That's a good point regarding investing everything in TFSA. I think they were thinking of using non-registered because the TFSA pays a higher interest at 2.55% than some of the regular HISA. But I agree with you and would be something I would suggest to my uncle and aunt.

@james4beach: Yeah, that's the headache with investing in ETFs in non-registered account. That's why I suggested stocks in the first place. Of course, if they invest only in TFSA, this point would be moot. In any case, at their age, I would rather taxes get withheld on distributions than for them to deal with tax issues. Also, if I go with index funds, I think I might suggest the TSX equivalent of the US index and EAFE index. I was thinking VFV and VEF. After all, they will be the ones controlling their investments afterward. I don't think they will easily grasp the Norbert's Gambit to convert Cdn $ to US $.


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## james4beach (Nov 15, 2012)

leeder said:


> @james4beach: Yeah, that's the headache with investing in ETFs in non-registered account. That's why I suggested stocks in the first place. Of course, if they invest only in TFSA, this point would be moot. In any case, at their age, I would rather taxes get withheld on distributions than for them to deal with tax issues. Also, if I go with index funds, I think I might suggest the TSX equivalent of the US index and EAFE index. I was thinking VFV and VEF. After all, they will be the ones controlling their investments afterward. I don't think they will easily grasp the Norbert's Gambit to convert Cdn $ to US $.


On the individual stock topic, I really doubt that will save you any hassle long-term. They're also going to have corporate events over time... splits, M&A activity that's going to be a pain to deal with. Go with an index of some kind.

If XIU still seems like too much work, then how about TD's e-series canadian index fund (MER 0.33%)? Since you're using TD Waterhouse you have access to this. You'll have to ask them whether this also has RoC and ACB work (I don't know) but if it involves less hassle, then it will be worth the slightly higher MER. They have a US index too, I think.

The non-Canadian funds are going to experience withholding either way (whatever exchange it's on). Not a big deal really. From the 14k I suggested, we're talking about $334 in annual dividends and $50 lost in withholding @ 15%.

You're right that TSX listed international funds may be easier for them. Again keep an eye on the MER and also beware that any "hedged" funds introduce additional expenses that are not accounted for in the MER. This is due to the derivatives held in such funds, there is a drag on performance that's not reflected in MER.

This article shows the performance drag of XSP. I've seen a much worse drag with XIN over the years and would not recommend XIN. So be careful what you choose... hedging leads to performance loss.


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## lonewolf (Jun 12, 2012)

For the stock portion they might want to consider giving the stocks a positive curvature by using deep in the money calls that consists mostly of intrinsic value. Go 2 years out in time, when they have one year left roll them into deep in the money calls with 2 years till expiry. The highly liquid spy is the tool for this. I would use the end of Dec or beginning of Jan a low volatility time for doing the roll overs.

The market moves against them they lose less money point for point that the underlying will lose because the premium will expand as the option gets closer to the money. (then start to decrease as it gets farther out of the money) The market moves in thier direction the options have no choice but to move up close to point for point with the underlying. The market moves sideways little premium is lost because there was none to begin with.

When you do the math you make more for every point when the market moves your direction then you lose for every point the market moves against your position.


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## mind_business (Sep 24, 2011)

Not sure I'd want to advise relatives on how to invest ... especially when their retirement future depends on the success of the plan. If something goes wrong, they will blame you ... although they may not say that directly to you. Tread carefully.


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## james4beach (Nov 15, 2012)

mind_business said:


> Not sure I'd want to advise relatives on how to invest ... especially when their retirement future depends on the success of the plan. If something goes wrong, they will blame you ... although they may not say that directly to you. Tread carefully.


This may be the best advice in this whole thread.

Maybe the OP should limit his advice to basics, such as reducing fees, helping interpret broker statements, and giving background information on investment options. Then have them make their own choices.


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## leeder (Jan 28, 2012)

mind_business said:


> Not sure I'd want to advise relatives on how to invest ... especially when their retirement future depends on the success of the plan. If something goes wrong, they will blame you ... although they may not say that directly to you. Tread carefully.


That's a legit point. However, I have explained the risks to them that stock market can go up or down and that they may risk losing money. They seem to understand the risks. In terms of my advice to them, I think I'll end up giving them options, as james4beach alluded to.


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## lonewolf (Jun 12, 2012)

Final note: tread carefully as it seems they've become interested in the stock market right when the S&P 500 reached a new all time high! Whatever your plan, don't go into stocks all at once in order to avoid the possibility of buying right at the top. Phase into stock positions over perhaps 1 or even 2 years.[/QUOTE]

good observation jamesforbeach

Title of some of the recent threads on Forum

Using home equity to buy dividend ETF
Advice Needed how conservative is to conservative.

@ the bottom in 09 were investors using home equity to buy dividend ETFs
@ the bottom in 09 did investors think they had played the market to conservatively

I forget the name of the company tracking the percentage of bull & bears but the number reached 2% bulls just before the bottom in 09.


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## james4beach (Nov 15, 2012)

I speak from experience on this one. I help various clients put together portfolios, and also occasionally help out family. Average investors have an uncanny ability to become interested in stocks near peaks. If you doubt that, ask around how many of your friends opened stock positions in 1999/2000, or 2007.

This chart of equity mutual fund inflows scares me... in early 2013 it showed a renewed interest in stocks, after many years of staying away
Equity Fund Inflows chart

That data is a bit out of date but you get the point. After 5 years of staying away from stocks, average investors suddenly get interested NOW. Given that market cycles tend to be around 4 years, that suggests to me people are getting in near the end of the current run.

My parents had me create an ETF portfolio for them in November 2007. This involved buying a lot of stocks. I suggested we phase into positions over a year, but they didn't want to bother - just open the positions now so it's done.

Result? They bought into the market practically right at the peak. You could not have bought in at a worse time.

Ease into your positions, especially when building a portfolio


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## fatcat (Nov 11, 2009)

it seems to me that the best thing you could do is help them set up their own guaranteed gic
take 97% and invest in like 3-year gic's and the other 3% in aggressive growth stocks

explain to them that in 3 years they will have 100% of their money back by virture of the gic interest payoff and their stock portion is their profit, if the market goes up, they reap the rewards of the market, if it goes down they still have 100% of the original investment back

they risk losing no prinicipal and yet still are in the market to pick up gains

but i do agree with the poster that said "watch out"


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... In short, before my very long post: invest in (a) a GIC ladder, and (b) a total of three or four low-MER ETFs. That's all!
> ... That's a small amount of capital. I hate to say this but with that little capital, you're not going to get anything significant in dividends. It will be peanuts. You really have to be selling shares to make any significant cashflow...


Since the OP says they are retired - shouldn't the focus be on something like the TD eSeries index funds instead of ETFs? 

Otherwise, with the exception of Questrade - each sale transaction for cash flow is going to have a commission attached to it. My understanding is that the TD eSeries or similar products won't have the commissions for buying and selling.


Cheers


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> Good point from Spudd about the total TFSA room... make maximum use of the TFSA...


True.



james4beach said:


> ... For the parts in a non-registered account, you're going to get ACB tracking headache from a few things: buy/sells, return of capital, reinvested distributions. In my experience the buy/sells are pretty straightforward, but the ROC & reinvested will give you endless headaches...


If one is not aware of it or has a crappy bookkeeping process or is trying to work through the RoC/reinvested years after the info has disappeared - then yes there are headaches.

If one knows about it and has a suitable bookkeeping system setup - it's a few extra transactions per year per security. 

It's really not that different from figuring out the capital gains when selling a stock. The first couple of times - it was probably daunting but when it's understood, it's a bookkeeping procedure.




leeder said:


> How would you allocate the money to each of the low MER ETFs based on 15k in TFSA and 36k in non-registered?





james4beach said:


> here's a suggestion based on your account sizes. This is along the same lines as your original idea (note that XWD holds XIU, IVV, EFA)
> 
> nonreg: 30k XIU - (tsx) Canadian index ...


Strange ... for the non-registered account the comment is that RoC makes the ACB calculations an endless headache. 

Yet on the other hand, the recommendation is an ETF that pays RoC for last fourteen years running and has also been known to re-invest in the fund at management's discretion (i.e. requires a transaction to increase ACB though no cash is paid).


If the ACB bookkeeping is that bad - this should be in the TFSA, should it not?


Cheers


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> On the individual stock topic, I really doubt that will save you any hassle long-term. They're also going to have corporate events over time... splits, M&A activity that's going to be a pain to deal with. Go with an index of some kind....


Say what? You are honestly saying that a stock that might have one split in six years is the same ACB work as an index?

If we assume over the ten years, there is two buys and two sales, that's something like five ACB transactions total for the stock in ten years.

Compare that with XIU over the last ten years, which assuming the same two buys & sells remain - there an additional ten RoC items plus an additional four re-investments in the fund that have to be added to the ACB. That's a total of eighteen ACB transactions in the same time period.



So yes - the hassle & work won't be totally avoided but it will be a lot less for the stock. Never mind that the other types of income from the index will also complicate the tax return.


Cheers


*Edit:* Of course if it's 18 transactions plugged into a spreadsheet - I'm not sure it's a lot of work regardless.


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## james4beach (Nov 15, 2012)

Ok good point, even with occasional M&A it's less work than even just tracking the basic old XIU.

I really dislike the idea of a bunch of individual stocks, for a financially novice older couple who has no clue how to look at financial statements.

I don't think anyone should hold individual stocks, unless they're actively reviewing the financial statements


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## humble_pie (Jun 7, 2009)

the principal thought i hope to express is that breaking down & analyzing the underlying accounting in an etf ... plus exposing the returns of capital that can signal loss of assets in an etf ... plus pinpointing where an etf's weakness lies via futures contracts or excessive derivatives trading to boost income ... bref ... all these analytics & perceptions that james4 has been carrying out so successfully in cmf forum for at least a couple of weeks are *far* more difficult & *far* more challenging for an individual investor than following the story of a well-known big cap stock such as BCE or TD bank.

it may be true that investors don't pore over companies' quarterly financial reports as much as they should. But they sure don't pore over any etf's financial underpinnings either.

a related problem, the way i see it, is that large companies' earnings & financial progress are well reported in the media. Even a dumb crumb investor like poor pie can pick up something from all the numerous public media commentaries upon bank earnings, for example.

but no journalists are muckraking into the innards of engineered etf's in the way that james4 has recently been doing, in this & other cmf threads. 

in fact, james4 is pioneering & we are benefiting. He is posting salient insights into different weak spots in the soft underbellies of certain kinds of etfs that cannot be found anywhere else. Certain etfs should be avoided, he suggests. But how many novice investors are ever going to read about this or be able to understand this?


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## humble_pie (Jun 7, 2009)

james4beach said:


> I really dislike the idea of a bunch of individual stocks, for a financially novice older couple who has no clue how to look at financial statements.
> 
> I don't think anyone should hold individual stocks, unless they're actively reviewing the financial statements



i believe this statement can be turned inside out quite perfectly:

_*"I really dislike the idea of a bunch of engineered etfs for a financially novice older couple who have no clue how to look at financial statements.

"I don't think anyone should hold etfs unless they're actively reviewing the financial statements"*_


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> Ok good point, even with occasional M&A it's less work than even just tracking the basic old XIU.


Bear in mind there is a wide amount of room for variation, depending on what one is doing. Most novices take a while to decide to DRIP - if one does DRIP, then for quarterly distribution stocks there's an additional four ACB transactions per year (for monthly distributions, an additional twelve). The ETFs I'm familiar with tend to pay distributions on less of a fixed schedule.


As stated earlier, where one does understand and has a handy spreadsheet setup (or investment tracking software) in these days with computers - it will be tedious but is far more manageable than it first seems. The exception is if the investor somehow ends up with almost all their investments generating a lot of ACB transactions.




james4beach said:


> I really dislike the idea of a bunch of individual stocks, for a financially novice older couple who has no clue how to look at financial statements. I don't think anyone should hold individual stocks, unless they're actively reviewing the financial statements


I do too. At the same time, some have used the top holdings of MFs to build their own stock setup based on well-known big cap stocks. It hasn't done as well as someone who is poring over the financial statements but has done much better than say my Aunt, whose RRSP is 100% GICs.




humble_pie said:


> ... it may be true that investors don't pore over companies' quarterly financial reports as much as they should. But they sure don't pore over any etf's financial underpinnings either...


Based on the number of people surprised and wondering how I knew info that was in the detailed sections of company annual reports or quarterly reports - I think it's safe to say that there are a lot of investors who don't review the financial reports as they should.

It also seems clear that ETFs are in the same boat, never mind the increasing array of fancy products these days.




james4beach said:


> ... but no journalists are muckraking into the innards of engineered etf's in the way that james4 has recently been doing, in this & other cmf threads.
> 
> in fact, james4 is pioneering & we are benefiting. He is posting salient insights into different weak spots in the soft underbellies of certain kinds of etfs that cannot be found anywhere else. Certain etfs should be avoided, he suggests.
> 
> But how many novice investors are ever going to read about this or be able to understand this?


Those paying attention owe him thanks for this work and a tip of their hat. :biggrin:


Not many novices will read & understand quickly. That's where I have mixed feelings. 

I've seen too many novices think they should understand something this complicated, the first time they read it. When they don't, they give up as "it's too complicated".

I see it as "learn as you go". IMO, it is less important to understand quickly and more important to learn at one's own pace so that the knowledge and skill are growing. After all - knowledge is one's best way of avoiding issues.


Cheers


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## james4beach (Nov 15, 2012)

humble_pie said:


> i believe this statement can be turned inside out quite perfectly:
> 
> _*"I really dislike the idea of a bunch of engineered etfs for a financially novice older couple who have no clue how to look at financial statements.
> 
> "I don't think anyone should hold etfs unless they're actively reviewing the financial statements"*_


You didn't turn it inside out. It's the same statement, and you're right! You should be reviewing the financial statements of your ETFs (I certainly do). Or any mutual fund you hold.

I think that's what people should be doing. They don't, of course. Hardly anyone looks at their mutual fund's financial statements.

Failing to review the financials is dangerous, no matter what you're holding. Those statements exist for a reason. But if you must ignore financial filings (as the norm apparently is to buy hundreds of thousands worth of securities without looking at audited financial statements) ... it's probably more dangerous to ignore filings from individual companies, versus a fund - provided that the fund has been vetted somehow and you have reason to believe it's properly structured, and free of fundamental flaws.


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