# 2011 Investment Ideas



## Belguy (May 24, 2010)

I have been doing some BNN watching today and heard the following:

--In a portfolio with a 40% fixed income allocation, keep your durations short and generally underweight bonds and overweight riskier assets.

--Here is a sample bond allocation in such a portfolio: 15% Claymore 1-5 Year Laddered Government Bond ETF (CLF), 15% Claymore 1-5 Year Laddered Corporate Bond ETF (CBO), 5% Claymore Advantaged High Yield Bond ETF (CHB), 5% iShares DEX Hybrid Bond Index ETF (XHB). If you want to add a little risk, then shave a bit off the laddered ETF's and invest it in JNK.

Going into 2011, overweight materials (especially!), energy, industrials, tech, agriculture, and financials (which have nowhere to go but up!). Underweight the normally defensive sectors such as consumer staples, services, and utilities.

Congratulations if you held Trans Globe Energy through 2010 for a 354% gain!
Or, how about Western Coal for a 280% return or First Majestic Silver which gained 240%.

On the other hand, condolences if you held Jaguar Mining, Encana, or RIM.

I usually take some profits at the beginning of the year but, based on what I am hearing, I think that I will maintain my current exposure to precious metals based on most analysts expectation for the beginning weeks of 2011!

Happy New Year!!


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## OptsyEagle (Nov 29, 2009)

Don't you think that if you heard it on BNN that perhaps you should do the opposite?


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## Jungle (Feb 17, 2010)

Stick to your ETFs and risk tolerance.


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## OptsyEagle (Nov 29, 2009)

Belguy said:


> I usually take some profits at the beginning of the year but, based on what I am hearing, I think that I will maintain my current exposure to precious metals based on most analysts expectation for the beginning weeks of 2011!


By the way, there really is no such thing as "taking profits" unless you plan to go out and spend the money. For most people this process is really better described as "trading one investment for another". It may be selling one stock to buy another or selling a stock to go to cash, but whatever it is, the question really is: "is this new investment better then the one I am selling?"

I mention this since many people think that "taking profits" is not only a good thing, but a strategy in itself. Some will sell 1/2 when an investment doubles, leaving the so called free money at risk. They should not delude themselves. That profit is not locked in by any measure of the word. All their money in their investment portfolio is at risk, at pretty much all times. 

In my opinion, it is always unfortuneate when the time comes that a winning investment needs to be sold. You will almost always, have more information and knowledge on the investment that you have held for a while and plan to sell, then the new investment that you will inevitably enter with the proceeds. Something to think about.

Just my opinion. Good luck.


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## warp (Sep 4, 2010)

Dont forget that unless you are talking about "taking profits" in a registered account, you will also have to pay taxes leaving you with less cash to deploy elsewhere in a new investment.

As well there are trading costs, but with discount brokers today, this is less of a concern.

Invetsment ideas for 2011?

I cant shake the feeling that bonds, particularly long bonds, are not the way to go.

Buying solid blue chip div payers with growing dividends over many years, dripping if you can, 
and holding them long term always seemed to work in the past......so Id bet they would work going forward.

I sure wish I'd done that 25 or 30 years ago!!

With this is mind,,,and with a teenage son .....I will soon be setting up such a portfolio for him.....with the proviso that his positions are to be maintained long term!

At the moment I am teaching him to drive,,( a bit of white knuckles at times, as he goes over the curb making right turns!)

I feel its at least as important, if not more so, to teach him about investing as well, and how imperitive it is that he watch his money with the same interest and vigor as he watches teenage girls.

good luck


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## Belguy (May 24, 2010)

I have a core portfolio of value and smallcap Canadian and U.S. equity ETF's and 15% of my portfolio is in emerging markets ETF's and 10% in the RBC Global Precious Metals Fund. My core bond investment is the PH&N Bond Fund D plus four other bond ETF's. My portfolio is 60% equities/40% bonds.

I just calculated my 2010 gains and my portfolio is up 16.6%. As the TSX gained 14.5% and the Dow was up 11.02% for the year, and my target is annual market returns plus a couple of percentage points from my emerging markets and precious metals holdings, I feel satisfied with this total return for the year.

I am wondering if anyone else has any thoughts on this.

Also, I would be interested in knowing how some others on this forum did with their portfolios in 2010 should you care to tell us.


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## dogcom (May 23, 2009)

I think taking profits is best described if you get lucky on a penny stock and sell it and put the money into something a lot more solid like a Canadian bank or something. Still trading the investment but the risk is definitely much lower.

On my portfolio I was more in cash last year then I should have been so my return was lower probably in the range of 7% mostly because of my precious metal funds. For 2011 and 2012 there is so much risk out there to big moves to the upside and the downside because of all the money free wheeling around and then the huge debt and bond concerns that could put the brakes on everything.


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## Argonaut (Dec 7, 2010)

Platinum (PPLT) and Boeing (BA).

Platinum is 30x rarer than gold and only 1.3x the price right now. It's moved up the least of all the precious metals this year. Also, with palladium at high prices its use will be scaled back as a cheaper substitute for platinum. Car manufacturers and the like might as well use the higher quality metal.

Boeing's stock has been hurt in large part because of years of delays with the 787 Dreamliner airplane. It looks like it will finally launch this year, and a lot of the fad investors have bailed out already. Tons of advance orders for the new plane, and existing revenues from older models and defense departments should drive this stock higher. Not expensive, sitting in the middle of its 52 week high and low. 2.6% yield while you wait.

Both great choices to add to a diversified portfolio. But I think we're due for a bit of a broad pullback in the start of the year.


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## warp (Sep 4, 2010)

Belguy said:


> I have a core portfolio of value and smallcap Canadian and U.S. equity ETF's and 15% of my portfolio is in emerging markets ETF's and 10% in the RBC Global Precious Metals Fund. My core bond investment is the PH&N Bond Fund D plus four other bond ETF's. My portfolio is 60% equities/40% bonds.
> 
> I just calculated my 2010 gains and my portfolio is up 16.6%. As the TSX gained 14.5% and the Dow was up 11.02% for the year, and my target is annual market returns plus a couple of percentage points from my emerging markets and precious metals holdings, I feel satisfied with this total return for the year.
> 
> ...



BELGUY:

Thats a pretty nice 2010 return for you, and one I think you should be very happy with, especially considering you were 40% in bonds.

I dont think you can count on the same returns from bonds next year....
and ditto for precious metals...but you never know, (and Im not Warren Buffet.)

I havent figured out exactly how I did in 2010, as I wait for all my statements to do that, and they will arrive prob next week.
Im an old fashioned guy, and like to do it with pencil and paper.

Like DOGCOM I held way too much cash, ( esp as my corp bond holdings were being redeemed early), "waiting" for the correction that never really came. This cash earned very little...but was 100% safe, so I take small comfort in that.

On the equities side probably did around 20 % + divs, but the figure on the total would have to be much less.

My thinking at this point in my life , since I never intend to work again, I am concerned just as much with return "OF" my capital, as I am on the return "ON" my capital.

No doubt though, that in 2011, I will be buying blue chip div players when I deem them at reasonable prices,,,and hold them long term.
Good yield,,, reasonable payout ratio, low debt, and good div growth are my targets.

Overall I am pretty happy with a solid 8-10 % return yearly , in a portfolio that is lower risk , with lower voliatility.

This gives me a very comfortable life, with no headaches, no issues, and no working!!
To me , the freedom to do whatever I want, whenever I want to has great value.
For instance,,,I have gone to watch every one of my sons basketball games for many years, without ever having to worry that I had to be somewhere else. I love that.


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## Belguy (May 24, 2010)

One of the pundits on BNN today claims that you would need a two million dollar portfolio in order to properly diversify it with individual stocks across all geographic areas and the appropriate sectors. For example, if you are buying a relative few Canadian dividend paying stocks, you are investing only in the Canadian markets which only account for approximately 4 percent of the world's equity trades and you will not be adequately diversified within the sectors.

He feels that a portfolio of low fee, broad-based ETF's covering the Canadian, U.S. (over 40% of world's equity trades), and International, including emerging markets is the way to go for the average investor.

For my bond component, I hold mainly the PH&N Bond Fund D.

You could also throw in a 5 percent portfolio holding of a precious metals investment. I use the RBC Global Precious Metals Fund.

Buy, hold, rebalance, and prosper and don't try to time the markets or be an individual stock picker unless you have all of the information including the inside scoop.

Use broad-based, low fee ETF's for adequate diversification rather than dependence on a relative few stocks.

Oh, and trade only for rebalancing purposes.

For model ETF portfolios, refer to www.canadiancouchpotato.com


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## warp (Sep 4, 2010)

BELGUY:

I also caught that guy on BNN yesterday by chance as I was fliipping channels. I forget his name at this moment.

I also heard him say that you would need a $2 Million portfolio to properly diversify with individual stoacks.

Personally I think thats nonsense,,,and remember thinking so as I watched.

My guess is that he wants to build up his business by convincing investors with , lets say $200-$500 K that you need his expertise and help.

Im not blaming him....as most people absolutely do need help.

Certainly though you dont need anywhere near $2M to diversify yourself.
Golbal diversity can even be had through some of the major US stocks like JNJ , KMB, XOM, INTL, PFE , DOW, GE, etc, which have a global reach

I agree with the ETF route, by the way, for most retail investors.


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## Belguy (May 24, 2010)

It seems to me that most investors are not diversified beyond a few Canadian stocks as I read very few comments here about large U.S. equities. And, even if you are invested in a dozen or so large corporations that do business internationally, are you still properly diversified by sectors?

I just have never been convinced that the average 'small' investor can be properly diversified by holding a portfolio of just a dozen or so individual stocks and all the more so if they are Canadian stocks since Canada accounts for just 4% of the world's equity markets.

Talk about investing in a small piece of the pie!!!


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## Belguy (May 24, 2010)

*My Rebalancing Dilemna*

My target asset allocation is 60% equities and 40% fixed income. Because my equity investments have performed better than my bond investments over the past year, I am now overweight equities by about 7 percent and thus need to rebalance.

However, the decision is more difficult this year as I am reluctant to invest in bond funds or bond ETF's given the current economic climate which almost guarantees a loss on bond investments going forward.

I have heard many recommend, as a possible alternative, good dividend paying stocks from large corporations with a history of raising those dividends over time. However, I am not an investor in individual stocks due to diversification concerns.

My question then is, how appropriate is it to hold dividend ETF's in a portfolio and consider it part of your fixed income component? Would I be kidding myself by doing this as I am aware that these are really normally considered in the equity fund category. If I were to go ahead with this plan, would I best choose a Canadian, U.S. or International Dividend ETF and do you have any suggestions?

What are the disadvantages of this approach and the alternatives? Should I even consider selling some of my bond funds and moving the proceeds to dividend and/or dividend growth investments.

I hate to face a period of almost certain losses on 40 percent of my portfolio should I stick to bond funds.

GIC's don't offer an attractive alternative given their record low rates.

If not bonds or GIC's, what then for the fixed income component of one's portfolio.

Some dividend ETF's that I am considering are the Claymore Cdn Dividend ETF, the iShares TR Dow Jones Sel. Dividend Index Fd. CAD, and the SPDR S&P International Dividend ETF (DWX).

Any thoughts?


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## kcowan (Jul 1, 2010)

Belguy said:


> My question then is, how appropriate is it to hold dividend ETF's in a portfolio and consider it part of your fixed income component? Would I be kidding myself by doing this as I am aware that these are really normally considered in the equity fund category. If I were to go ahead with this plan, would I best choose a Canadian, U.S. or International Dividend ETF and do you have any suggestions?


I think you are asking whether it would be wise to diversify out of Canadian Bonds into international dividend-paying stocks. I would have to say that depends on your investment strategy. You would be reaching for yield by shifting out of fixed income. Here is some reading on the subject.


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## Greyhound86 (Feb 21, 2010)

kcowan said:


> I think you are asking whether it would be wise to diversify out of Canadian Bonds into international dividend-paying stocks. I would have to say that depends on your investment strategy. You would be reaching for yield by shifting out of fixed income. .


I read an article on SeekingAlpha discussing the same thing.(whether to invest fixed income $ into solid div paying blue chips)

The most important thing I learned from the article was a reminder that in 2008/9 meltdown ETF's containing blue chip div paying large caps went down anywhere from 30 to 50%!

I also recall reading somewhere recently the purpose of the fixed income portion of your portfolio was to protect your total portfolio from large declines when equity markets go down sharply. 

Deciding what to do with the fixed portion of your portfolio is a very tough decision right now. I hold some high yield bond funds (but they can also follow the equity market up and down) and some preferred shares with maturity dates 2-3 years out. I wish I had set up my own bond ladder.


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## Homerhomer (Oct 18, 2010)

Belguy said:


> It seems to me that most investors are not diversified beyond a few Canadian stocks as I read very few comments here about large U.S. equities. And, even if you are invested in a dozen or so large corporations that do business internationally, are you still properly diversified by sectors?
> 
> I just have never been convinced that the average 'small' investor can be properly diversified by holding a portfolio of just a dozen or so individual stocks and all the more so if they are Canadian stocks since Canada accounts for just 4% of the world's equity markets.
> 
> Talk about investing in a small piece of the pie!!!


Yet those investors who were under diversified in few Canadian stocks representing financials, utilities, telecommunication, and so on in the last 20 years have outperformed every single mutual fund and just about every large propertly diversified portfolio, and beat any large index. Combined capital appreciation with dividend income has been very good ;-)

Investing in foreign equities while adds to the diversification it also adds the factor of foreign exchange which makes the decision making process even more difficult ;-)

It's all about risk tolerance ;-)


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## Belguy (May 24, 2010)

Here are the links to the three dividend ETF's that I have been considering--Canadian, U.S., and International:

http://www.claymoreinvestments.ca/en/etf/fund/cdz

http://us.ishares.com/product_info/fund/overview/DVY.htm

https://www.spdrs.com/product/fund.seam?ticker=DWX

Does any one of these seem superior to the others for Canadian investors?

Which of the three would you choose?


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## andrewf (Mar 1, 2010)

Belguy: Horizons AlphaPro have just introduced a new floating rate corporate debt ETF that should be a better bet that straight up short-term bond funds in terms of reducing interest rate exposure. You can watch and wait to see how it does, but you might want to add it to your radar.

Another thing that I had my eye on as a fixed income substitute is something like the preferred shares for the Dividend 15 split corp.


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## kcowan (Jul 1, 2010)

Greyhound86 said:


> ...I wish I had set up my own bond ladder.


Yes it is a lot of work but it avoids the short term volatilty. I can rest in peace knowing that my market value month-to-month means nothing.

That is why I cannot respond to threads that ask; "How did you do?" because I would have to value my fixed income when I don't want to. It will be worth face value when it matures, unlike ETFs which never mature.

Investing in ETFs is simple but I do not like simple. I figure the extra work will generate extra returns.


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## Greyhound86 (Feb 21, 2010)

andrewf said:


> Another thing that I had my eye on as a fixed income substitute is something like the preferred shares for the Dividend 15 split corp.


I bought some split share pref shares this past year. BNA.PR.D which matures in 2014, FTN.PR.A matures 2015 and BBO.PR.A matures 2016.

They all yield around 5%. 

There are lots of others around but those just happen to be the ones I managed to buy. Not a recommendation at all - just an example. 

They are all trading at a premium so remember to calculate the Yield To Worst in order to take into account your cap loss when they mature. Check the ratings out as well - some are more risky than others. 

If you want to buy shares like this you have to pick away at them. Volumes are low and the bid/ask spread can be large enough to make it worthwhile to take your time and try and buy them on a down day.


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## HaroldCrump (Jun 10, 2009)

I sometimes never caught on pref. shares.
I have evaluated/considered them many times but somehow always ended up not making a move.
I can usually get higher yields on bonds with less risk (higher on the capital structure).
I wonder at folks like Hymas - they make their living with pref. shares and he is very, very good at what he does.
I feel that pref. shares have the worst of both worlds - lower yields than bonds, slightly less risk than common equity but none of the upside.


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## warp (Sep 4, 2010)

kcowan said:


> Yes it is a lot of work but it avoids the short term volatilty. I can rest in peace knowing that my market value month-to-month means nothing.
> 
> That is why I cannot respond to threads that ask; "How did you do?" because I would have to value my fixed income when I don't want to. It will be worth face value when it matures, unlike ETFs which never mature.
> 
> Investing in ETFs is simple but I do not like simple. I figure the extra work will generate extra returns.


That all fine and dandy, unless the bond issuer redeems your bonds early.
Just about every bond is issued with such a provision in the prospectus to do just that.
In fact, just about everything in every prospectus is there to protect the issuer,,,not the investor.

So as interest rates dropped so fast, as they did, many bonds were simply redeemed early, leaving you holding cash that you didnt want, and with nowhere to now to invst this cash to get the same, or near yield.

Bond ladders built a few years ago can sure fall apart easily in such times as these.

And of course any ladders being built today pay pathetically low interest, so you shouldn't do that either.

Conservative bond investors,( mostly older ) are now caught between a rock and a hard place.....nowhere to run, nowhere to hide.


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## Belguy (May 24, 2010)

As an older, retired investor, that is precisely my dilemna. That is, whether to stay with my 40 percent fixed income, bond fund allocation, or overweight equities and take a chance on another stock market crash which will come sooner or later!!

What are the rest of you older, retired investors doing with your fixed income allocation which is likely a significant portion of your overall portfolio if you go by the age rule that says that the percentage of fixed income in your portfolio should match your age.

What should say a 70 year old do about the large fixed income component of his or her portfolio?

I guess that I am trying to get a reasonable answer to a question that currently has no reasonable answer!!


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## HaroldCrump (Jun 10, 2009)

Belguy said:


> if you go by the age rule that says that the percentage of fixed income in your portfolio should match your age.


That is just another of those ho-hum rules-of-thumb that you read about in bank broucheres and financial columns, but almost never fit any real person.
The amount of fixed income you need is not equal to your age or any other magical number.
It is simply the cash that you need for your annual essential expenses, such as food, shelter, home/car maintenance, etc.
Therefore, "fixed income" investments don't have to be bonds.
They can be savings accounts, GIC ladder, dividend paying stock and of course bonds.
Capital protection is paramount for this bucket.



> I guess that I am trying to get a reasonable answer to a question that currently has no reasonable answer!!


I think there is...what you seem to be doing is yield chasing using exotic ETFs.
Split your "fixed income" capital across a GIC ladder, reliable dividend stock, some bonds in such a way that yields approx. 1% - 2% more than current inflation rates and generates enough to meet your essential expenses needs.
The rest of your capital is growth capital that generates your "fun" money i.e. luxuries, vacations, etc.

You say you are a single, retired individual.
I'd guess your essential annual expenses to be in the $25K to $30K range?
Part of that I assume is being provided by govt. benefits such as CPP, OAS, etc?
So say you need about $20K from your "fixed income" investments.
Assuming an yield of 5% (which is a conservative return, easily achievable using a combination of 5 year GIC ladder, dividend stock, bonds, etc.) you will need approx. $400K in your "fixed income" portfolio.
The rest of your capital is yours to deploy towards growth/"fun".

Now, if $400K represents 20% of your portfolio, good for you.
If it represents 90% of your portfolio, no matter, _c'est la vie_

These are, of course, rough numbers but you get the idea.


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## Jon_Snow (May 20, 2009)

Having listened to virtually every market "expert" proclaim than 2011 will see the major indices rise double digits, I have again restablished a relationship with a couple of old friends... TDB900 and TDB902. Now looking to get some emerging market exposure...

I warn you, the fact that I am in the market now means that we will see a double-dip.


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## Belguy (May 24, 2010)

If I need $400,000 in the fixed income portion of my portfolio, that frees me up to put the remaining nickel into equities!!


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## HaroldCrump (Jun 10, 2009)

Belguy said:


> If I need $400,000 in the fixed income portion of my portfolio, that frees me up to put the remaining nickel into equities!!


You are getting hung up on the difference between "equities" and "fixed income".
Think purely from the perspective of cash flows and growth.
Part of your capital is required to generate cash flows required for living expenses.
The rest of the capital is required to generate cash for non essentials, increasing capital (if required), and your legacy/inheritance (if required).
Why does the difference between "equity" and "fixed income" matter in your case?
Only two things matter - the yield, and the security of the principal.
You simply need to generate the required yield given an acceptable level of risk to the principal.
You don't have mortgages to pay off, kids to put through college, save for retirement, etc. therefore accumulating or growing capital substantially doesn't sound like an objective so why sweat over it?


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## kcowan (Jul 1, 2010)

HaroldCrump said:


> ...I wonder at folks like Hymas - they make their living with pref. shares and he is very, very good at what he does...


Yes and MAPF is still earning about 17% in 2010. I tried to understand them and then concluded that I cannot compete with James and joined him instead. He is worth the 1% so far.


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## kcowan (Jul 1, 2010)

warp said:


> That all fine and dandy, unless the bond issuer redeems your bonds early.
> Just about every bond is issued with such a provision in the prospectus to do just that.
> In fact, just about everything in every prospectus is there to protect the issuer,,,not the investor...


I never by callable bonds. I know that is limiting my selection but at least I know my YTM.

If I had to buy callable bonds, I would probably go with an ETF and eat the MER.


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## kcowan (Jul 1, 2010)

HaroldCrump said:


> ...Why does the difference between "equity" and "fixed income" matter in your case?
> Only two things matter - the yield, and the security of the principal.
> You simply need to generate the required yield given an acceptable level of risk to the principal...


Exactly and in that case, he can still call the portion invested in dividend-paying ETFs equity. I would bet that his allocation would be pretty much what it is today.

There is no free lunch!


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## Belguy (May 24, 2010)

I have likely posted this link in the past but wondered if anyone has any current thoughts on the suggested investments and allocations listed any/or any changes you might make.

If an investor's fixed income allocation is 40% of his or her overall portfolio, what would you think if it was constructed along the lines of an allocation such as this as opposed to an all-bond allocation?

http://www.theglobeandmail.com/glob...int-for-finding-monthly-yield/article1797376/


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## HaroldCrump (Jun 10, 2009)

Belguy said:


> I have likely posted this link in the past but wondered if anyone has any current thoughts on the suggested investments and allocations listed any/or any changes you might make.
> 
> If an investor's fixed income allocation is 40% of his or her overall portfolio, what would you think if it was constructed along the lines of an allocation such as this as opposed to an all-bond allocation?
> 
> http://www.theglobeandmail.com/glob...int-for-finding-monthly-yield/article1797376/


I remember seeing this before...maybe it was you that posted it.
Can't recall if I commented at that time, but anyhow, my opinion is that this portfolio does not provide good value and return vis-a-vis risk.
It is, no dobut, a passive portfolio.
However, you pay the price for passivity by the 0.45% MER and the 4.4% yield.

Also, the portfolio is not devoid of risk.
Note that other than the 33% in XBB, the rest of the portofio is subject to substantial market risk.
CPD is subject to less risk than the XDV for example, however, back in 2008 - 2009 even preferred shares dropped in value under the prospect of large companies going bankrupt and renegading on their committments.
The portfolio has approx. 25% exposure to US equity market as well.

Given that, I don't think 4.4% is particularly attractive.

With a little bit of work, you can do a lot better and save the 0.45% yield as well.
The Canadian components of this ETF portfolio can be easily replicated without using the ETFs.
Consider XRE and XDV for example: you can pick the top 5 components directly and avoid the MER.
Similarly, you can buy investment grade bonds directly and avoid all the issues associated with bond funds.

I'd say by spending 10 hrs. a month on average you can do better than 4.4%.

It's simply a trade off between your time and returns.
Based on your posts, I believe you do not lack the skills required to do this.
It is a matter of willingness, and finding the time.


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## warp (Sep 4, 2010)

kcowan said:


> I never by callable bonds. I know that is limiting my selection but at least I know my YTM.
> 
> If I had to buy callable bonds, I would probably go with an ETF and eat the MER.



Problem is......that is tryly limiting your selection, and the selection these days is awful.


As well the yields are even worse making just about any bond buy risky.
Thats why I won't buy any bond funds or bond etf's.

The only exemption is my buy of JNk....I'll take my appr 10% yield,( actually about 8.5% now), and hope for a US dollar recovery.

Individual bonds are useless as well at the moment, which leads to a real headache trying to get your fixed income allocation working.


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## HaroldCrump (Jun 10, 2009)

warp said:


> Problem is......that is tryly limiting your selection, and the selection these days is awful.


warp, buying callable bonds in a falling interest rate environment is just asking for trouble.
Esp. buying individual bonds that are often illiquid, have huge spreads/commissions built into them.
Many callable bonds got called when interest rates started falling in 2008 - 2009.
Also, following the 2009 - 2010 "recovery" (if you call it that), the corporate spreads reduced as well, effectively reducing the interest rates for investment grade and near-investment grade bonds.
That led to a second round of calling in 2010.

I'm seeing many callable bonds getting listed by my brokerage.
Most of those are from creditworthy issuers like the banks, insurance companies and utility companies.
If credit spreads tighten further, all those will get called.

Callable bonds favor the issuer, not the buyer.

You should calculate your YTW and not YTM when buying these time-bombs.


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## Belguy (May 24, 2010)

I'm afraid that I have quite a closed mind when it comes to investing in individual stocks and bonds. Maybe it is sheer laziness and perhaps it is costing me but, despite my interest in index investing, I have never had the inclination or interest in individual stock and bond selection.

I'll leave it to others to try to achieve better long term returns than the broad indexes can offer.

That said, I find that I do have a dilemna relating to the fixed income component of my asset allocation as we face a long period of rising interest rates and knowing what a negative effect that will have on bond fund returns.

I have been trying, without much success, to justify considering dividend ETF's as a legitimate part of my fixed income allocation. After all, dividend funds are, in fact, equity funds and not fixed income investments.

Therefore, I have pretty much decided that I will rebalance my portfolio by either going the short term bond ETF route or by building a ladder of GIC's. My age is also a factor here.

That is the way that I am leaning at this point, even with the knowledge that my fixed income component, while providing some ballast should the equity markets turn rough, will likely not contribute any real growth to my overall portfolio in the months and years to come.

Any further thoughts that might help others and myself in regard to what investments to include in the fixed income part of one's portfolio going forward, particularly for older investors.

I think that I should at least stay with my 60/40 asset allocation equities/bonds so that I can sleep well at night!!!


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## atrp2biz (Sep 22, 2010)

HaroldCrump said:


> Callable bonds favor the issuer, not the buyer.


There's no free lunch, even for issuers of bonds.

A callable bond is essentially a regular corporate bond with a call option attached to them. The holder of the bond would thus be long the bond and short the call. The premium of the call is reflected in the yield of the bond--the yield is higher than a bond without a call. In an environment of rising rates, callable bonds will tend to outperform non-callable bonds. Of course, in an environment of falling interest rates, there is the risk of the bond being called--similar to the risk of being assigned on a short equity call.


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## kcowan (Jul 1, 2010)

Belguy said:


> Any further thoughts that might help others and myself in regard to what investments to include in the fixed income part of one's portfolio going forward, particularly for older investors.


I have offered this suggestion before. Have a look at Convertible Bonds. They have a lower rating and a yield of around 6% but they offer upside for inflation with a convertible option that is based upon the underlying stock appreciating by 25%. Keep this inventory to 5% of your asset allocation.


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## warp (Sep 4, 2010)

HaroldCrump said:


> warp, buying callable bonds in a falling interest rate environment is just asking for trouble.
> Esp. buying individual bonds that are often illiquid, have huge spreads/commissions built into them.
> Many callable bonds got called when interest rates started falling in 2008 - 2009.
> Also, following the 2009 - 2010 "recovery" (if you call it that), the corporate spreads reduced as well, effectively reducing the interest rates for investment grade and near-investment grade bonds.
> ...


HUMBLE:

Back when I bought our bond ladders, the sh*t hadnt quite hit the fan yet, so the callable features were not as big an issue as they later became.

When rates started to really fall in earnest, many bonds were called/redeemed early.

As well I find thats it was difficult to even find bonds with no call features (esp back then.), that youd want to own. It also seems that those bonds were yieding less.

So you take your chances, and live with the results.

I had intended to hold to maturity, and did figure out my YTW.

Do you know of any individual ,investment grade, non-callable bonds that we can buy right now, that youd like to own??
I certainly can't find any.


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## humble_pie (Jun 7, 2009)

hey warp i'm not harold crump.

harold's the bond expert here.
actually there are quite a few bond experts here.

me i never own bonds. Just common stock, options, cash, a few swiss francs.


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## I'm Howard (Oct 13, 2010)

The major problem with Bonds is to find a site that offers a good selection.

Royal Bank, IMO, has the best selection , and I own a large amunt with a five year window, bought with a YTM of 5.5%, and I am willing to put up with the gyrations for the 5% return.

Age has nothing to do with the % of bonds held, asset value and future needs drive portfolio mix.

An 80 year old with $4,000,000 needs Zero, not 20%, stocks.

No one should own any bonds with a maturity of over five years, 10% GIC's will be available, don't know when, but they will, as will 8% mortgages.


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## warp (Sep 4, 2010)

humble_pie said:


> hey warp i'm not harold crump.
> 
> harold's the bond expert here.
> actually there are quite a few bond experts here.
> ...



Sorry HUMBLE, I should have written "HAROLD"
thanks for pointing out my error.

Interesting that you never own bonds though.
Thats fine when markets are stable,,,but gut wrenching when bears hit, like 2008-9.

My bonds, and cash was really stabilizing during that period, and allowed me to hold on to the stocks I had, and buy more at great prices, to participate in the recovery.


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## kcowan (Jul 1, 2010)

I'm Howard said:


> ...An 80 year old with $4,000,000 needs Zero, not 20%, stocks....


It is true the HE NEEDs Zero, but his heirs might appreciate the inflation-protection offered by a balanced portfolio.

Back in the DAY, 80/20 or 70/30 beat 100/0!


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## humble_pie (Jun 7, 2009)

this may sound a bit extreme but to make the point i'd say an 80-year-old with $4 million needs zero bonds. His life expenses will be met with dividends & capital gains alone.

his heirs will benefit. His tax return will benefit. If he doesn't have any heirs he should have a worthwhile charity in his name. 4M will endow a medical clinic, a childrens' library, a public art gallery wing ...

i don't even want to picture a rich octogenarian owning 100% bonds as he howls over his tax return.


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## Belguy (May 24, 2010)

Here are some random 6 month ETF returns, as of December 31, that I thought might be of interest to some:

BMO Equal Weight REITs Index ETF: +17.10%
iShares S&P/TSX Capped REIT Index ETF: +14.78%
Claymore Global Real Estate ETF: +16.73%

BMO Junior Oil Index ETF: +42.83%
Claymore Oil Sands Sector ETF: +27.75%
iShares S&P/TSX Capped Energy ETF: +19.54%

Claymore BRIC ETF: +23.83%
Claymore Broad Emerging Markets ETF: +28.03%
iShares China Index ETF: +2.73%
iShares MSCI Brazil Index ETF: +17.13%
iShares S&P CNX Nifty India Index ETF: +13.51%
iShares S&P Latin America 40 Index ETF: +20.96%

Claymore Global Agriculture ETF: +38.29%
Claymore Global Infrastructure ETF: +18.12%
Claymore Global Water ETF: +18.18%

Claymore Global Mining ETF: +38.20%
iShares S&P/TSX Capped Materials Index: +34.68%

Also, here are a couple of funds that I own:

Mackenzie Cundill Recovery Fund C: +27.89%

RBC Global Precious Metals Fund D: +58.25% (1 Year: +76.57%)
Claymore Gold Bullion Trust ETF: +13.42%
iShares S&P/TSX Global Gold Index: +21.03% (1 Year:+31.14%) 

I will post some Canadian, U.S. and International Broad-based ETF six month comparisons later, recognizing that this is just a snapshot in time and may very well not reflect longer term comparisons.

Do your own 'due diligence' to determine any investment's suitability for your own portfolio.


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## I'm Howard (Oct 13, 2010)

EWC is a better buy than XIC, and VWO is preferable to CBQ.

Completely out of XSB, still holding XCB, bought more EWC today.

My gut, stocks will outperform Bonds for the next while, and when GIC rates get back to 8%, I will go 100% GIC's.


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## kcowan (Jul 1, 2010)

I'm Howard said:


> ...stocks will outperform Bonds for the next while, and when GIC rates get back to 8%, I will go 100% GIC's.


Yea except that when GICs are paying 8% stocks will be paying 12% or better!


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## metta2006 (May 1, 2011)

HaroldCrump said:


> That is just another of those ho-hum rules-of-thumb that you read about in bank broucheres and financial columns, but almost never fit any real person.
> The amount of fixed income you need is not equal to your age or any other magical number.
> It is simply the cash that you need for your annual essential expenses, such as food, shelter, home/car maintenance, etc.
> Therefore, "fixed income" investments don't have to be bonds.
> ...


Sorry for reviving the old thread, but HaroldCrump's comment makes me wonder if I do really need fixed income portion. 

Here is our situation:
My husband and I are 37 and have two little kids. No mortgage or debt. 
I have no employment income but my husband's job is solid - lawyer making 100K a year and likely that will increase and he is planning to work until 70's.
We have 1.5million in life insurance and extra disability on him. We usually can save about 1000-1500 dollars a month towards our TFSA or RRSP or RESP. We have 200K in portfolio-90% in savings account.

I was thinking of allocating 20-30% of my portfolio to fixed income but after I read your thread, I wonder if it is really necessary to assign such portion to fixed income. We don't need monthly income from investment. I would be more interested in capital growth than monthly income.
Would you say I could go 90% in equities if I can ride out rough market times because I don't need to withdraw funds to make a living? Or should I still have more like 20-30% in bonds just to reduce volatility?

What about dividend income investing? Is it a bad strategy if we don't really need dividend income now? I thought I would include it to reduce volatility of equities. 

I would really appreciate on your comments.


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## andrewf (Mar 1, 2010)

Adding lower-return, uncorrelated assets (such as bonds or cash) to a equity portfolio can actually increase compounded returns provided you rebalance your allocation diligently as needed.


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