# Please comment our plan to perserve $500,000 for 10 years



## drdtyc (Mar 23, 2010)

We are a family of three who will arrive in Toronto as landed immigrants this summer. I and my wife are 55 and 53 respectively, while our son is 17. He will go to college in 2 years’ time.

We have already set aside an adequate fund to buy a town house or a condo without the need of a mortgage. Our next plan is how to fund our daily expenditures. We both are professionals and hope to find jobs once we have settled down in Toronto. We plan to live within a budget of an average Canadian family income of $50,000 per year so that we will be able to live comfortably. 

Assuming the worst case scenario of both of us being jobless for the next ten years, we have thus set aside $500,000 which will be able to sustain us for the next decade. This sum is on top of our house purchase money. 

We would like to seek the forumer’s view of our investment plan to preserve our $500,000 in the next ten years.

We plan to invest in Mortgage Investment Corporations (MIC) which give annual returns of 8% to 10% currently. Using the rule of 72, a 8% annual return sustaining for 9 years will be able to double our $500,000. In other words, we will be able to live off the income of our MIC investments for the next 9 years and yet our original sum of $500,000 will still be preserved at the end of the decade. We know that 8% on $500,000 will only give us a $40,000 annual income. But this is OK to us as this plan is a worst case scenario where we will be out of job for 10 years.

To reduce the risks of investing in MICs, we plan to do the following
(1)	invest $100,000 each on 5 MICs.
(2)	spread the risk geographically e.g. 5 MICs lending on properties in 5 different provinces.
(3)	choose MICs with 10-15 years records of good returns. 
(4)	choose MIC with conservative lending policies e.g. low loan-to-value ratio & majority loans granted are 1st mortgages

Will the above plan be workable? Is there any pit-falls in our assumptions? Other comments are welcome.

Thank you!


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## Jungle (Feb 17, 2010)

I've never heard of a MIC before, but I just did some reading from WIKI. It sounds a Real Estate Investment Trust (REIT) that's not traded on the stock exchange. I could be wrong?

On a WIKI search, it says that, according to the Income tax Act:

8. Dividends received with respect to directly held shares, not held within RRSPs or RRIFs, are taxed as interest income in the shareholder’s hands. Dividends may be received in the form of cash, or additional shares.

This means the income is heavily taxed. Not very good, the tax man will take a good portion of the money. (I'm guessing maybe about 10K, google a tax calculator for exact) 

I just copied this from WIKI:
Fraud - less likely since a MIC must produce audited financial statements every year. Check out the financial statements and see if the MIC is subject to any lawsuits.

Losing MIC Status - failing to keep within the Income Tax Act rules would cause the MIC to have its income taxed before being distributed to shareholders and would lower returns considerably

Manager (In)competence - the success of the MIC depends to a critical degree on the experience, expertise, judgement and good faith of the managers. Do they know the business, do they know their market and do they have a record of success? Can and will they find a steady flow of new mortgages to keep the income flowing in? Think of it as a job interview.

Leveraging - the rules allow the MIC to borrow money but some do more than others. The spread between the lower rate of the MIC's borrowing and the lending will boost the ability to generate shareholder returns but it also increases risk. The audited financial statements will show how much the MIC has borrowed. The prospectus will say if the MIC has a policy to cap what it will borrow. Many of the MICs are fairly short term lenders - 24 months or so - which reduces interest rate risk and should allow the MIC to continually readjust its lending rate to match increases or decreases in general interest rates and keep the spread between its lending and its bank borrowing rates constant.

Default on Mortgages - mortgage borrowers may not pay back what they owe; all the MICs claim to be very careful about who they lend to but some are explicitly in a niche where the banks don't tread or in second mortgages. The MIC gets a higher interest rate but that is associated with the higher risk. At least one MIC - Cooper Pacific - has two funds, one that lends out first mortgages with an 8% return and another with second mortgages with a 12% return. "You takes your picks and you takes your chances."

Market Downturn / Geographical concentration - some MICs, the smaller ones, are concentrated in very limited markets, like Westboro in Ottawa or Edgeworth in northern Alberta. Ottawa is a stable market but what happens to Edgeworth if the oil industry cools off considerably, as it has done in the past? A general economic recession would everywhere increase the number of borrowers having difficulty to repay.

Liquidity (Can't sell) - the basic method to get your money back is not a sale in some market since MICs are not (with one exception, I found) publicly quoted companies but for the MIC to redeem the shares; the restrictions vary by MIC, whether funds can be sold / withdrawn immediately, or with 30/60/90 days notice; for smaller MICs, the Income Tax Act restriction that each MIC must have at least 20 shareholders might come into play.


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## Larry6417 (Jan 27, 2010)

*Free advice and worth every penny!*

I'll be blunt: I think your idea is awful. 

First, the most important consideration for you is risk of capital loss (or its converse, safety of pricipal). That $500,000 is, presumably, the remainder of your lives' savings after purchasing a home. That money has to be safe! Mortgage insurance companies are generally small and leveraged. Mortgage rates are low, which means that profits from a portfolio of mortgages are relatively low. Also, simply buying a number of MICs does not insulate you from risk. Diversification protects from company-specific risk but not systemic risk. What's the systemic risk here? As mortgage rates rise, more mortgagors will be unable to meet their payments. Default rates may not spike dramatically, but they don't have to for a drop in profits (and thus payouts). The Bank of Canada has already stated its intention to raise interest rates. Also, many consider parts of Canada to be in a housing bubble.

Second, as jungle pointed out, payouts are taxed as interest. You obviously haven't taken that fact into account in your "rule of 72" calculations. REITs (real estate investment trusts) are companies (usually larger than MICs) that also offer 8-10% payouts. However, the payouts are more tax-advantaged (partly return of capital). Also, REITs, though they invest in real estate, can be better diversified than MICs, which invest mainly in residential mortgages. REITs invest in hotels, shopping centres, industrial parks, as well as residential real estate.

My suggestions? (Again worth every penny ). Use all the tax-advantaged savings possible. Open a TFSA for yourself and your spouse. Unfortunately, you can shelter only $5,000 per person per year. For money outside tax-shelters such as TFSA/ RRSP, you want high safety with the payouts tax-advantaged, if possible. You may want to consider products from Claymore investments (an ETF provider). CAB (Claymore Advantaged Bond) is an ETF that replicates a broad index of Canadian bonds, all A or higher, ~ 40% corporate. The structure of the ETF allows payouts to be charaterized as return of capital or capital gains - very tax-efficient. The MER is 0.3% - very reasonable. CPD is an ETF of Canadian preferred shares; it offers limited growth but tax-advantaged income (dividends) at a reasonable MER, 0.45%. If you want to diversify out of Canada, then consider CYH (Claymore global advantaged), an ETF of foreign dividend paying corporations, REITs, and master limited partnerships. The structure of the ETF allows payouts to be characterized as return of capital or capital gains. The MER is higher, but still reasonable at 0.65%. The risk of CYH is higher, but the potential growth is higher too.

You haven't mentioned what field you work in. Obviously, the best option for your financial well-being is to work in your field. Have you considered moving to the area that needs your skills most? Drawing a good income for the next 10 years would eliminate most of your financial worries.


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## Jungle (Feb 17, 2010)

Simply put, it's too many eggs in one basket, to hold capital for 10 years, especially when the Canadian housing market is due for a correction? Who knows what will happen to the value of those MICs, if people default or fall under water with their home values.


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## Cal (Jun 17, 2009)

I agree with the above points, too many eggs in one basket, they are too heavily taxed, and they can be illiquid. 

The tax burden on this will take its toll on your calculations.

If you really wanted to put all of your money into a Real Estate type investment, and you really needed 10% return. REITs are a more tax efficient way to do that. However that offers you no diversification in the event of a RE sector downturn.

Definitely use the TFSA/RRSP accounts to shelter tax dollars. however as a new citizen you wouldn't have RRSP contribution room as of yet.

This link may be helpful:

http://www.dailymarkets.com/economy...tgage-investment-corporations-mics-in-canada/

Welcome to Canada!


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## Henry (Jul 12, 2009)

*Read Garth Turner*

Garth Turner at greaterfool.ca has convincing arguments that Canadian real estate may fall for the next ten years. 

I would lean toward a diversified portfolio of equities, preferred shares, bonds, and cash to preserve capital and achieve higher returns with income as well.

One way of preserving capital in the stock market is market timing. Here is a study that uses SMA200 to reduce downside risk: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962461


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## OhGreatGuru (May 24, 2009)

_We plan to invest in Mortgage Investment Corporations (MIC) which give annual returns of 8% to 10% currently. _

We are in a prolonged period of historically low interest rates. There are no investments that can offer you that kind of return and still have security of capital. So if you need security of capital you will have to settle for 4-5% in Guaranteed Investment Certificates or something similar.

If you can accept the risk of equity investments, then there are many Balanced funds; CDN equity Funds; and CDN Dividend funds that would be relatively low risk over a 10-year horizon. But I don't think you can count on any of them to deliver 10%. Investing 100% in real estate would be rather risky, even in the CDN market.


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## Dr_V (Oct 27, 2009)

drdtyc said:


> We are a family of three who will arrive in Toronto as landed immigrants this summer.


First, congratulations on choosing to come to Canada, and best wishes for you and your family as you resettle here.

On to your question ...



> We plan to invest in Mortgage Investment Corporations (MIC) which give annual returns of 8% to 10% currently.
> 
> <snip>
> 
> ...


I will echo what other posters have said. Your proposed plan is heavily concentrated in one asset class -- you could be financially ruined if this sector tanks.

Furthermore, 8% to 10% historical returns are almost too good to be true; without knowing anything about MICs, it makes me very suspicious about just how risky these assets really are. (To put into perspective, some junk bonds trade in this range...)

My general feeling is that you should, instead, build (not necessarily by allocating all of the money at once) a diversified portfolio of dividend-paying equities, investment-grade bonds, and fixed-income investments which will help to minimize the risk that any given sector will hurt your portfolio.


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## Dr_V (Oct 27, 2009)

Wikipedia covers what these MICs are: http://en.wikipedia.org/wiki/Mortgage_Investment_Corporation

It seems that there are some serious risks to consider.



> *Fraud *- less likely since a MIC must produce audited financial statements every year. Check out the financial statements and see if the MIC is subject to any lawsuits.
> *Losing MIC Status* - failing to keep within the Income Tax Act rules would cause the MIC to have its income taxed before being distributed to shareholders and would lower returns considerably
> *Manager (In)competence *- the success of the MIC depends to a critical degree on the experience, expertise, judgement and good faith of the managers. Do they know the business, do they know their market and do they have a record of success? Can and will they find a steady flow of new mortgages to keep the income flowing in? Think of it as a job interview.
> *Leveraging *- the rules allow the MIC to borrow money but some do more than others. The spread between the lower rate of the MIC's borrowing and the lending will boost the ability to generate shareholder returns but it also increases risk. The audited financial statements will show how much the MIC has borrowed. The prospectus will say if the MIC has a policy to cap what it will borrow. Many of the MICs are fairly short term lenders - 24 months or so - which reduces interest rate risk and should allow the MIC to continually readjust its lending rate to match increases or decreases in general interest rates and keep the spread between its lending and its bank borrowing rates constant.
> ...


Of these, I suspect that the risk of default is perhaps the scariest. A reliance on the manager's competency also scares me. (Generally, I view most "managers of my money" as being rather incompetent, which is why I prefer to invest everything myself.)


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## MoneyGal (Apr 24, 2009)

This is the second time on this forum (I think) that I've seen the "rule of 72" invoked to support an investing strategy. 

This rule is a mathematical formula which helps you you estimate the number of periods required to double an original investment. It is not in any way a predictor of investment performance.

Yes, if your investment returns 8% per year, then it will double after 9 years. 

But what if it doesn't return 8% per year? You have characterized this scenario as the "worst case" scenario - but it seems to hinge on an unrealistic return assumption.


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## Cal (Jun 17, 2009)

And you need a return of 8% after taxes to make the rule of 72 work in the previously stated example to have it double every 9 years.


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## HaroldCrump (Jun 10, 2009)

Henry said:


> Garth Turner at greaterfool.ca has convincing arguments that Canadian real estate may fall for the next ten years.


Purely IMHO, I would caution against using anything written or said by Garth Turner to make investment or asset allocation decisions.
One day he's warning against bonds, next day it's preferred shares, then the housing market.
He's right every now and then of course, but so will you and I be if we were to randomly pick things.
His party-hopping has taken away any personal credibility in my eyes as well.


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## Four Pillars (Apr 5, 2009)

> Garth Turner at greaterfool.ca has convincing arguments that Canadian real estate may fall for the next ten years.


The only problem is that he's been saying this stuff for the last 15 years...

Someday he'll be right. 

_A broken clock is right twice a day._


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## Henry (Jul 12, 2009)

Harold, Mike: After studying economic bubbles, I think Garth Turner is right about some Canadian real estate markets are in a bubble. Of course, neo-classical economics say there are no economic bubbles, but as a student of history, I have to conclude otherwise.

Turner made a call in March 2009 to go all in and made a call in December 2009 to sell. I guess a broken clock is right twice a day. 

Turner isn't all knowing, but some of his arguments are sound.


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## CanadianCapitalist (Mar 31, 2009)

I'll echo what other posters have said: MICs may be a very risky place if $500K is your entire capital. If you are heading to Ontario, it is likely that you may not even be able to purchase MICs, which are sold to accredited investors.

As with any investment, you should pay attention to the downside. What if you lose a portion or all your capital invested in MICs? Would you be able to manage okay what with starting a new life in this country and all? The answer will help you determine whether MICs are suitable for you.


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## HaroldCrump (Jun 10, 2009)

drdtyc, methinks you have been listening to a sales pitch by a MIC agent and quite likely an MLM type scheme.
If you want to take a bite of the individual residential mortgage payments, a safe[r] alternative may be a mortgage income mutual fund.
Most of the large banks have an in-house mortgage income fund.
They are usually no load funds and you can purchase them from your local bank branch.
Following is one such from Scotiabank:
http://www.scotiabank.com/funds/profiles/FP6661_74_ENG.pdf

The fund summary states:

_The fund's objective is to provide regular interest income. It invests primarily in high quality mortgages on residential properties in Canada. These mortgages are 
i) insured or guaranteed by Canadian federal or provincial governments, or their agencies, or 
ii) conventional first mortgages with loan-to-value ratios of no more than
75%, unless the excess is insured by an insurance company registered or licensed under federal or provincial legislation._

The returns are nowhere close to your target 8% (which is probably what the sales dude promised you).
As always, read prospectus before investing and due your due diligence, etc.

And yes, I wouldn't dream of investing anywhere close to $500K into such an instrument.


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## Cal (Jun 17, 2009)

You may wan to avoid some of these companies as blogged by Berubeland:

http://www.milliondollarjourney.com/mortgages-not-being-renewed.htm


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## humble_pie (Jun 7, 2009)

dr d, many here have wise counsel for you, which is fortunate because we all hope your savings will serve to launch a happy and prosperous new life here in canada while also providing a comfortable emergency fall-back fund. In particular harold, larry & dr V have sensible things to say.

larry says:

_" ... I'll be blunt: I think your idea [to invest the half-million in MICs] is awful."_

yes, larry is right, and harold backs him up.

and dr V counsels wisely:

_" ... my general feeling is that you should, instead, build (not necessarily by allocating all of the money at once) a diversified portfolio of dividend-paying equities, investment-grade bonds, and fixed-income investments which will help to minimize the risk that any given sector will hurt your portfolio."_

fortunately for our future concitoyens, markets are tumbling. Nothing will be lost if new studies are made and new insights are sought. Even after arrival, funds can be left temporarily in high-interest savings accounts while time & attention get devoted to new advisors and new approaches, hopefully along dr V's lines.

with one important exception, i believe everyone would concur that larry's suggestion for setting up 2 tax-free savings accounts, one for each spouse, each in the amount of $5,000, should be implemented right off the bat.

the exception is too important to neglect. I believe there is a provision for new immigrants with substantial assets to escape income tax on those assets for approximately 2 years after arrival in canada. Generally, such immigrants leave such assets in foreign tax enclaves such as the bahamas or hong kong, although the assets are not hidden from the canadian tax authorities and everything is legitimate. Also speaking generally, it's my impression that many canadian financial houses maintain active businesses in bahamas, channel islands, hong kong etc. catering to such immigrants.

so sorry, but i don't have firsthand knowledge of this (my ancestors, you see, were the kind that arrived penniless in the holds of boats.) Moreover, i don't know if a half-million would be considered substantial enough assets. Wherever you are, HSBC would be a knowledgeable bank at which to begin inquiries. The canadian immigration officials at whatever embassy you are dealing with should also have some knowledge of this program, which was designed to attract wealthy investors. It is worth checking out to see if you qualify.

and even if you would qualify, and would indeed choose to take this route, i for one believe that a domestic TFSA in the amount of 5,000 for each spouse set up soon after arrival in canada cannot be improved upon.


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## Berubeland (Sep 6, 2009)

I have a different kind of advice as usual. 

First of all when you are a new immigrant to Canada be very careful. 

The first thing I would do is rent a place for a year. I have a couple good reasons for this. The first one is because before you buy a house you need to learn about the different areas. The second is because you have no idea where you will work. 

The second thing to be very aware of is that as soon as you get here people will be trying to separate you from your money with all kinds of hare brained investments. 

MOST OF THESE PEOPLE WILL BE FROM YOUR OWN CULTURAL GROUP. Lots and lots of people prey on the vulnerable new immigrant who is in a rush to get settled. 

It is very comfortable to move to Canada and immediately be accepted as a new immigrant among your own people and culture. My advice is not to get comfortable with people of your own culture but to get out and away and learn how things work here. This will make you less vulnerable. 

I have seen many examples of this kind of behavior. When I first moved to Toronto I was only one of three Canadian people that lived in a building of Polish immigrants. The people who were the supers in the building were police officers in their home country and they ran that place with an iron grip. Every polish person was terrified of them. Most had settled in and were working for polish companies and going home to their polish run building. Some of them after years of being in Canada did not even speak English. It was almost as if they were trapped by the same kind of world they had immigrated to escape. They did get all the parking spots though 

Then later on in property management I met a guy who got people's money and bought properties and "managed them" One house he bought he didn't pay the heat and the pipes broke and the entire basement flooded and grew the worst mold I had ever seen. All his properties were managed in the same way and they were basically unrentable. He has the distinction of being one of the most dishonest people I have ever met in my life. God help you if you invested with him. In person he looked great and was as smooth as silk. 

So I say take your time, rent a while, put your money in separate banks so that it is all FDIC insured. Learn everything you can and be very vigilant. Do your due diligence. Don't buy a Dollarstore or convenience store or any business. Be very careful.


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## drdtyc (Mar 23, 2010)

Dear everyone who has commented on the MIC plan I contemplated,

I am most grateful to read about your advices as well as welcoming me to Canada.

With the benefit of hindsight, I now realize that I was "only seeing the trees but not the forest" when I talked about diversifying into 5 MICs but was not aware that my investment remains concentrated in one single asset type i.e. loans on real estate. 

From your advices, we plan to do the following:
(1) put $5000 into TFSA each for my wife and myself
(2) rent a place to stay for the first year without committing to buy our home and be tied down to one location. 
(3) widen our social circle to mingle with people from various cultural backgrounds other than our own. 
(4) take time to work out a plan to diversify our investment into various asset classes with an aim to preserve our saving.
(5) Consider dividend stocks, ETF and REITs etc
(6) Explore with a bank e.g. HSBC to see if our asset size is qualified for more lenient tax treatment within our first two years of landing in Canada
(7) Look for jobs to accumulate more savings before retirement age.

Without thinking through the various investment options in details, I have three pressing questions to ask:
(1) Which vehicles are best for temporarily parking our housing and investment funds besides the $10,000 put into two TFSA?

(2) Would this summer be a good time to buy into bond ETFs? In fact, I personally prefer to hold other fixed income assets instead of bonds. But it seems most people are talking about 50/50 or 60/40 bond/stock mix as a common asset allocation strategy. 

(3) With retirement in the 10 year horizon, would a couch potato strategy of index investment be appropriate? My worry is the market will be down when I retire. How about dividend growth strategy? If I buy into dividend growing stocks, hopefully I will have a sizable dividend income ten year down the road even the market is down at that time.

Please bounce me with more ideas.
Thanks again.


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## humble_pie (Jun 7, 2009)

morning dr d

so far, so good.

for temporarily placing savings, 3 reputable institutions with high-interest online accounts come to mind. These are ING canada, Ally and lesser-known Icici bank canada, a subsidiary of a large Indian bank. All have CDIC insurance for accounts up to 100K.

ing probably pays the least of the 3, but it's still a respectable enough 1.20% for overnight liquid funds. Its website is ing.ca. Can you find websites for the other 2 ?? Ally is the highest, paying 2%.

a slight problem is that all may require a pre-existing account with a domestic canadian bank, one of the big 6. They need this for their virtual links, so they can accept deposits & forward funds electronically. And if you're not in canada yet you may not yet have a domestic canadian bank account.

i'm not sure i'd be in a swivet to buy bond funds right now. The bank of canada is widely expected to raise rates in a few more days. Other rates have trembled higher in anticipation of this.

it occurs to me that, if you are planning to manage your financial undertakings yourself, it would be a good idea to settle down with a big, all-around bank that offers wide range of cross-services. TD & RBC come to mind. I'd have a preference for td because their discount brokerage is out in front, always has been.

then, when it comes to your tfsas, these would go to the chosen bank's online brokerage.

for slow & careful financial planning, i still think dr. V's suggestion serves as a good baseline guide:

_" ... my general feeling is that you should, instead, build (not necessarily by allocating all of the money at once) a diversified portfolio of dividend-paying equities, investment-grade bonds, and fixed-income investments which will help to minimize the risk that any given sector will hurt your portfolio."_

you could direct savings into these categories & sectors either by using etfs or, perhaps later on when you have more time, by buying selected equities directly.

in the meantime, a good website to check out is canadiancouchpotato.com, in addition to the highly-regarded finance blogs maintained by canadian capitalist and milliondollarjourney.

the only thing i don't agree with is the suggested avoidance of your own cultural community. Instead, this would be the greatest blessing for a new canadian family, i would imagine. A church frequented by your cultural community would have links, through the pastor, to all kinds of mainstream canadian congregations, for example. Music and the arts will simultaneously anchor you within your community and connect you to others across canada (even cooking will do that !).

take care. Stay in touch.


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## drdtyc (Mar 23, 2010)

humble_pie said:


> for slow & careful financial planning, i still think dr. V's suggestion serves as a good baseline guide:
> 
> _" ... my general feeling is that you should, instead, build (not necessarily by allocating all of the money at once) a diversified portfolio of dividend-paying equities, investment-grade bonds, and fixed-income investments which will help to minimize the risk that any given sector will hurt your portfolio."_


I have been reading and thinking about adopting the dividend-growth style of investing.

The Globe and Mail has an article "Dividend Deluxe: A plan for stellar long-term gains" listing top dividend growers in Canada for the past 10 years up to August 31, 2007:

Company Symbol	*Yield on Shares Bought 10 Years Ago (%)*
Shaw Communications	SJR.B-T *24.7*
CHC Helicopter *17.6*
Teck Cominco	TCK.B-T *7.7*
Reitmans (Canada)	RET.A-T *30*
AGF Management	AGF.B-T *9.8*
Brookfield Properties	BPO-T *6.9*
IGM Financial	IGM-T *11.1*
Empire Co.	EMP.A-T *7.2*
Great-West Lifeco	GWO-T *13.3*
Canadian Western Bank	CWB-T *9.1*
Metro Inc.	MRU.A-T * 6.1*
Canadian National Railway	CNR-T *7.3*
SNC-Lavalin Group	SNC-T *7.2*
Royal Bank of Canada	RY-T *12.3*
Bank of Nova Scotia	BNS-T *12*
Power Corp. of Canada	POW-T *10.1*
Toromont Industries	TIH-T * 6.7*
Power Financial	PWF-T *12.6*
EnCana Corp.	ECA-T *7.1*
TD Bank	TD-T *10.9*

Would these be good starting points to build my portfolio?

I am thinking of gradually building up my position by investing regularly e.g. monthly or quarterly over one year. Is there any broker that can set up a regular purchase plan for me? I am hoping to purchase these stocks automatically - once the plan is set up - so as to get benefit from the dollar averaging effect and to impose a self-discipline to buy the stocks regardless of market condition at the time of purchase. 

Any thoughts and comments?


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## houska (Feb 6, 2010)

Welcome to Canada. As a son of parents who immigrated 30 years ago (they arrived with a lot less in assets than you, but on the other hand with assured professional jobs), I wish you all the best of luck.

I think you have received a lot of good advice in the forum already - advice you have appreciated and taken to heart, it seems. I don't know what country and culture you are coming from, but in my opinion Canadians are very forthcoming with advice. This is both good and bad - much of the advice is helpful, but some advice you will here (from everyone you talk to) will be naive. And a portion may be self serving and meant to enrich someone else at your expense - as others have pointed out.

With that preamble, here are two bits of advice from me.

1. You have said your main focus is capital preservation for the next 10 years. That makes sense. Bear in mind, however, that inflation is your enemy. Negative returns will of course eat away at your capital. Positive low-risk returns of 0-3% or so sound better, but will actually eat away at your capital after you adjust for inflation and taxes. Returns of 4-6% are, in my opinion, what you could reasonably expect to make with a diversified portfolio that exposes you to some risk but should be reasonably safe over a 10 year horizon, yet give you a chance of beating inflation. Promises of returns of 8-10%+ are too good to be true, unless there is some hidden risk you are not fully aware of. 

If I were in your shoes, I would safely deposit the money somewhere at 0-2% in a safe place for one year as you get your bearings, but then I would think about thoughtfully taking on a bit more risk in order to beat inflation over the long term. 

2. I don't know what professional background you have, but be aware that in some professions it is quite challenging for immigrants to get their foreign credentials recognized and find jobs matching their experience level. Hopefully you will not have that difficulty. In case you do, let me plant a seed of thought: you have significant capital. If you decide your employment prospects are not as good as you hope, you might consider using your capital in an entrepreneurial way. This is not for everyone, and is of course much more risky than what I mentioned in #1 above. Do not do so rashly. However, the combination of capital and the initiative you doubtless have as professionals, immigrants, and accumulators of wealth in your life thus far could make this a possible proposition, and may put the future more under your control. 

Best of luck!


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## humble_pie (Jun 7, 2009)

we did get the impression, you see, that your highest priority for this portfolio was preservation of capital & safety. That's why dr. V's tripartite division - dividend-paying equities, investment grade bonds and other quality fixed income products - made such good sense.

i believe you mentioned somewhere that you will pay for your new house in cash, so right away you will have a fair amount of principal at risk in the real estate sector.

therefore i'm wondering whether a portfolio of 100% dividend stocks is wise, even if these would be large caps with stable records of dividend growth. Perhaps some seasoning with the above-mentioned investment grade bonds would be in order. Perhaps a regime like 60% cash-bonds-fixed income and 40% hi-quality dividend-paying blue chips might be contemplated.

overall, i would hope you will stay strictly away from illiquid stocks, preferred stocks, specialty stocks with quirky stories or quirky high dividends, and so on. It's pretty traumatic moving lock, stock & barrel to a new country - i've done this a few times - so i think sticking to big name large cap stocks with stories that appear prominently in newspapers and are easy to follow would be an excellent idea for at least a few years after the new arrival.

the list of dividend-paying stocks you have posted does feature well-known names whose stocks are highly liquid and widely followed. That's good. The list is also out-of-date, as it's from 2007, so it requires adjustment to today's circumstances and to your own circumstances. For example, because of your house ownership, perhaps you'd avoid real estate stocks.

it's a fairly good list, if one eliminates some names. The problem as i see it is that, although many of the remainder are quality bedrock canadian enterprises with stable dividend histories, their stocks are all, in the year 2010 and following the record surge of 2009, robustly priced. CN rail, for example, is near record highs. Nevertheless it's an excellent pick. Same story for your trio of 3 big canadian banks plus midcap cdn western bank.

metro & empire (both supermarket chain) are good defensive picks.

i think that teck B and chc helicopter are too volatile, too resource-linked & therefore too speculative for your basic portfolio, which i'm still assuming is to be conservative (a problem with an outdated list like this one is that teck's high 2007 dividend was eliminated; it may have been partially reinstated in recent months, but would still be very low.)

the 2 powers and great-west lifeco - and possibly also igm financial, i've never owned this one, am not familiar - are all inter-owned parts of the Desmarais empire. Just off the top of my head, i see no particular reason to sink much into power/desmarais. If you wish to own any i'd go for the parent which is power corporation (pow.)

i am surprised to see that telecommunication is mostly missing, although there are some hi-dividend players in this sector like bce and telus. BCE has had a fairly recent traumatic history, which may have chopped it out of your 2007 list, but all has been settled by now and its dividend yield is presently one of the highest.

as for purchasing these stocks automatically, i doubt anyone except a full-service broker will do this for you. The problem here is that there will be a considerable number of frequent purchases, and therefore the full-service commissions will be outrageous. This is not a good way to go.

alternatively, and most efficiently, you could identify one or 2 canadian dividend etfs that contain stocks similar to your list. Any number of people in this forum can suggest these etfs to you. Ishares dividend etf would likely be one; vanguard would have another. So sorry that i'm not particularly up on these. My religion forbids holding any dividend-paying stock as a fee-paying fund or etf, you see. These stocks are far too easy to find on one's own & should always be held in outright ownership for max benefit, says my mantra.

after identifying the likely etfs, surely it would not be too much of a challenge to open a discount brokerage account and manage quarterly or even monthly new investments oneself. Then, as life in the new domicile settles down, you could segue out of the funds into the individual stocks if you wish.


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## drdtyc (Mar 23, 2010)

Thanks to Houska and Humble Pie for your comments which are very much appreciated.



drdtyc said:


> I am thinking of gradually building up my position by investing regularly e.g. monthly or quarterly over one year. Is there any broker that can set up a regular purchase plan for me? I am hoping to purchase these stocks automatically - once the plan is set up - so as to get benefit from the dollar averaging effect and to impose a self-discipline to buy the stocks regardless of market condition at the time of purchase.


As a follow-up to my own question above, I have searched and found a possible solution.

It seems that Canadian ShareOwner Investment Inc could be a useful platform for a "buy-and-hold" investor to set up a regular purchase plan of $40,000 investment per month for 12 months to build up a $480,000 portfolio of 10-20 dividend-paying stocks. 

The $40 commission per month - regardless of how many stocks in an order - is only 0.1% of the $40,000 monthly investment. Furthermore, ShareOwner offers automatic DRIP up to 4 decimal points free of charge.

Is there anyone in this forum using the ShareOwner platform for regular purchase? Any comment? Thanks!


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## MoneyGal (Apr 24, 2009)

I think you will find that Canadian Shareowner is not quite the solution you hope it is. Or, if they accommodate you, it will be in spite of the fact that your needs deviate from their business model. 

1. Your preferred stocks may not be on their list of 200
2. They practice co-op investing, where your purchases are pooled with others and purchases are made according to a pre-determined schedule. This is not the same as orders executed to your specifications and according to your timing preferences

Finally, although they don't say so directly, their intention is to facilitate small trades. I don't know that they would turn away trades at the size you are proposing, but I do know that what you are proposing would not be the norm for their clients.


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## Oldroe (Sep 18, 2009)

I think Shareowner would be a very good place to start. Learn there investing do's and don't then study your other picks for why they don't make the 200 list. And start small, the game is get the most shares for your money so go slow and if the markets tank go fast.

One thing to check is fees. I don't think you can accumulate div. and use for income you might have to move your shares to a discount broker and there will be a fee. 

Still a good way to accumulate and re invest.


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## drdtyc (Mar 23, 2010)

Hi MoneyGal,

Thanks for your input.



MoneyGal said:


> 1. Your preferred stocks may not be on their list of 200
> 2. They practice co-op investing, where your purchases are pooled with others and purchases are made according to a pre-determined schedule. This is not the same as orders executed to your specifications and according to your timing preferences


I have gone through their list of 200 stocks. It includes 18 of the top 20 Canadian dividend growers according to Globe and Mail in 2007. Since my personal list is not finalized. I am Ok to work within the constraint of ShareOwner's list of stocks on offer.

As regarding co-op investing with pre-determined schedule, I can live with it as I do not want to time the market. Furthermore, I want a regular purchase plan to gain from dollar cost averaging effect and to impose self-discipline to invest. 



MoneyGal said:


> Finally, although they don't say so directly, their intention is to facilitate small trades. I don't know that they would turn away trades at the size you are proposing, but I do know that what you are proposing would not be the norm for their clients.


This is an interesting point. I may email ShareOwner to see how they respond.

I note that ShareOwner is a CIPF member. Hence an investment account of up to $1 million is insured against the collapse of ShareOwner as a business. Is my understanding correct regarding this investor protection issue?


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## Four Pillars (Apr 5, 2009)

For the kind of coin you are talking about, why don't you just set up a regular brokerage account and do the trades yourself?


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## MoneyGal (Apr 24, 2009)

Indeed, FP. 

The focus in this set of posts seems strangely "off." A bank FP or discount brokerage would provide the service this person requires at low cost and with personal contact. I don't know why they'd be interested in co-op investing.


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## humble_pie (Jun 7, 2009)

yes MG it is a bit strange.

one of the luxuries of a forum blog like this, where one has nothing to sell, is that one can just say no.

and now to the original poster: i do not think your plan is suitable for a person in the circumstances you have announced.

apparently you have at least a million, but no jobs yet here in canada. You are planning to migrate here and search for employment, yet you will promptly put all of this capital at risk by buying a house for cash and - within a year - a selection of dividend-paying common stocks that you have chosen from a newspaper.

??

what will you do, a year after arrival, say, if a poor scenario prevails, and you find both your house and your dividend portfolio have taken a 20% haircut. Worse, you have not found the jobs you want, so the employment situation is distressing. Your investments including the house are now down to 800K; and this is not even a severely bad scenario.

in a severe scenario, market loss & downward housing correction have both occurred, there are no jobs, and therefore you have had to invade capital to pay for daily life. The haircut in this scenario has increased to 33%. Please keep in mind that such a haircut is not even as severe as what we experienced in 2008/09. But your investments, including the capital depletion, are now down to about 620K.

2 last remarks:

(1) unless you have another million or millions stashed away that you haven't mentioned, a 100% common stock portfolio is not appropriate for the half-million in conservative savings you have proposed. If you're serious about a protected portfolio, you also need bonds and quality fixed income to act as a defensive hedge.

(2) fooling around with a share-buying cooperative or other penny-pinching strategies do not seem appropriate for any well-to-do family that is planning to launch a new professional life in a foreign country. One would imagine that you will have your hands full just coping with the socio-cultural adjustment. Might this perhaps be the time to find a good advisor - and pay him or her - while you learn to deploy your own portfolio in north America.


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## Oldroe (Sep 18, 2009)

Both of you should get your heads out of the sand before you speak.


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## MoneyGal (Apr 24, 2009)

What are you suggesting?


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## Oldroe (Sep 18, 2009)

That neither of you know anything about share owner.


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## Spidey (May 11, 2009)

I don't know if this is what you are looking for, but here is a suggestion.

If you take about $350,000 of your money and invest it in GICs @ 3.5% interest you will have $500,000 in 10 years. You then take the remaining $150,000 and invest it a little more aggressively. What you choose is up to you, but for example:

$25,000 REITs
$25,000 Canadian index ETF
$25,000 US Index ETF
$25,000 Emerging market ETF
$25,000 International ETF
$25,000 small cap mutual fund or ETF

You will be guaranteed your $500,000 in 10 years and with a little luck, you may also have significant growth. (Numbers are just approximate - perhaps you can get a better rate of interest.)


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## Four Pillars (Apr 5, 2009)

Oldroe said:


> That neither of you know anything about share owner.


Since your snide comment implies that you are some kind of ShareOwner (not 
"share owner") expert, why don't you share your information with us?

As for my knowledge, I know the following:

Cons of ShareOwner: 

Limited selection of securities. If you want the big dividend players., however, then you should be able to find what you want.

Costs are not that cheap - $9.95 per trade ($40 maximum) is no bargain. 

Questrade only charge $5 with a $10 maximum for larger orders. SO promotes relativelysmall monthly purchases which doesn't make sense given that their trading costs are not very low. Questrade would be a better choice for a small investor unless they are buying quite a few stocks with their monthly purchase.

RRSP annual administration fee is $79. Even the big banks charge less than this. TFSA annual fee is $50 and RIF/LIF annual fee is $100. This is not competitive at all.

Account withdrawal fees are $12 for open account, $48 for RSP, $25 for TFSA. I've NEVER heard of "withdrawal fees" being charged before. Home buyer withdrawal is $100!???

Pros:

Automated transactions which I don't think you can get anywhere else. 

[edit] Can purchase fractional units.

I think I'm going to do a post on this!! Does anyone here have any experience or thoughts on ShareOwner? 


Here's a pretty good article on the service from 2008 (the fees have changed):

https://secure.globeadvisor.com/servlet/ArticleNews/story/gam/20080702/RCARRICK02

Here is a list of updated fees:

http://www.investments.shareowner.com/csii/csii_fees.html


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## humble_pie (Jun 7, 2009)

another good idea from Spidey.

i'd omit that internat'l etf, though.


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## Sampson (Apr 3, 2009)

Four Pillars said:


> I think I'm going to do a post on this!! Does anyone here have any experience or thoughts on ShareOwner?


I've taken a 'course' offered by the group that teaches/stresses fundamental analysis. It's 'free' for me through my University, and gives me access to their database of earnings and some software that will plot these figures.

The investments they cover are all solid and analyses based on strong principles of fundamental analysis.

I don't see a huge negative to the company itself, and had initially considered opening an account with them. I think its a great way for people with small portfolios to build their own if they wish to pick stocks. As you mentioned, they only cover a limited number of stocks - always 'boring' large-cap NA stocks with long track records of increasing earnings and profitability.

Not a terrible choice for many, but for people like the OP, as MG and HP allude, a self-directed account is probably the better option.


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## MoneyGal (Apr 24, 2009)

The *one* thing I dislike about Internet forums is the random anonymous snark they contain. 

I know a reasonable amount about Shareholder and similar co-op/DRIP/investment club etc. mechanisms for buying small quantities of dividend-paying stocks. 

My issue is that Shareholder is intended to overcome barriers the OP doesn't actually face; principally related to small account size (or the desire for small holdings of particular shares). I concur that a place like Shareholder would be a good place for someone to "get started" in dividend investing, and can be a good place for someone with small holdings they want to build. 

However: this is not the situation the OP is in. He or she is indicating a requirement or desire to be fully invested from the get-go. And at the size he or she is contemplating acting, there's no benefit from that approach, as ably pointed out by Four Pillars. 

I found the comment from the OP about costs a little bizarre. One one hand, the original post indicated a requirement/desire/expectation for 8% annual returns while maintaining capital...and then relatively abruptly, the focus turned to dividend investing with a concern about minimizing transaction costs. ISTM the OP's focus is all over the place. That's what my post was about, not about Shareholder per se.


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## Oldroe (Sep 18, 2009)

You start out with a good study package on growth stocks re enforced with a magazine that will pick a sector and study 5-6 stocks.

So ShareOWNER has taken 1000's of stocks down to 200+ they are always adding and removing. So that's a pro not a con. Now you will need to do your own study and make a selection. You can DCA or buy on the spot you can sell on there schedule or sell immediately.

You can't compare cost to Discount broker and you can't compare to DRIPPS. You can compare to full services but nobody is calling you and now it's very cheap.

I'm sure there will be no problems with 500k or more and nothing is stopping you from taking your info and buying from a discount broker.

They do re invest fractional amounts back into your selection. The one negative is you can't accumulate cash, if you want to accumulate your div. you will need to move to discount broker and that fee is very high.


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## Sampson (Apr 3, 2009)

Oldroe said:


> ...if you want to accumulate your div. you will need to move to discount broker and that fee is very high.


The fee is high to:
i) move?
ii) or to have an account?

I pay 0 to have my accounts, AND my wife paid 0 to move her accounts from the old sources to the discount broker.

I have a synthetic drip, cash CAN accumulate in my account, and I pay less than 0.5% in 'fees' for transactions. I could trade/buy less frequently than I do and probably cut that transaction costs of my portfolio to below 0.25%. This is not per annum, this is over the past 4-5 years.


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## Four Pillars (Apr 5, 2009)

Sampson said:


> The fee is high to:
> i) move?
> ii) or to have an account?
> 
> ...


There is a $12 withdrawal fee for open accounts.


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## Oldroe (Sep 18, 2009)

The fee is high to move shares in kind.

And you are still comparing dripps that have huge flow problems and mind numbing paper work. And discount brokers to ShareOWNER.

THERE IS NO COMPARISON 

For all the poster that show up every month looking for some direction check ShareOwner.

And I have dripps and TD Waterhouse Accounts.


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