# Is now a bad time to invest?



## Rusty O'Toole (Feb 1, 2012)

I recently sold some income property and have about $500,000 to invest. I want to buy dividend stocks because I need the income but the fact that we are at the tail end of an 11 year bull market, and the market seems way overbought scares me. It would be my luck to go all in right before a major drop in the market.

Is there any way to get a decent return, without running this risk? Or should I chance it? What would you do?


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## kcowan (Jul 1, 2010)

It is a crap shoot. There are people who have been sitting on the sidelines for a year. How would that make you feel? FOMO? 

Have a look at our 2020 Predictions to get the mood of the fine people here who are brave enough to express their opinions. Jan 13th.


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## dubmac (Jan 9, 2011)

Rusty O'Toole said:


> the market seems way overbought scares me. It would be my luck to go all in right before a major drop in the market.
> Is there any way to get a decent return, without running this risk? Or should I chance it? What would you do?


I'm not going in at these levels...and I have been watching and waiting for a 18 months for this market to come off the boil
Yours is the million dollar question, and I don't know what the answer is. Not sure whether anyone does. 
I wish I wudda gone in 12 months ago, but then it seemed the sky was falling.
Most pundits that I read are saying 2020 will be flat - no big changes, and then 2021 may (or not) be the drop that has been anticipated.
With the US election coming in 11 months, I'm expecting ups and downs (no growth), followed by a big question mark.


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## lonewolf :) (Sep 13, 2016)

Rusty forget using the stock market for a cow


I really like the price pattern of Bitcoin possible wave count was 3 up going into all time high wave 4 looks complete & the 5th wave up looks like it has recently started with still along way up to go. I recently purchased GBTC & will buy some more on Monday for my TFSA. I hardly ever risk trading in my TFSA only if reward is very high with favorable odds. 

Price pattern in gld looks like a high reward to risk with high probability to short with OTM put options. Looks like gold will be in triple digits in next few years. Central bankers are lousy market timers & have been buying hand over fist lately.

Tesla I Like the price pattern to play the long side 

OTM puts/leaps on spy or spx look good here.

risk Max of 2% on any of the above of the 500,000


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## Rusty O'Toole (Feb 1, 2012)

If I want to speculate I can do very well in TQQQ but good opportunities only come along 2 or 3 times a year. I am looking for a steady income as from dividends to replace the rental income I no longer get.


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## lonewolf :) (Sep 13, 2016)

If you want shares for income maybe credit union shares. Recently saw add for DUCA credit union was selling shares


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## cainvest (May 1, 2013)

Rusty O'Toole said:


> Is there any way to get a decent return, without running this risk?


Simple answer, no but also depends on what you call a "decent return".

You could spread out the funds over FI and dividend equities, padding more into FI if you don't like the current market levels.


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## newfoundlander61 (Feb 6, 2011)

I sold my home about 15 months ago and thought the same thing as you did. Ended up moving into the market slowly over a period of months and currently have 11 holdings. All are up except for 2 so being diversified helped with that. Really hard to determine when to get in, I would just start over time and do it. A year from now the markets are likely to be higher but who knows for sure, that being said invest when you have the money. There is currently and always be some risk when investing in stocks, no way to avoid that generally.


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## peterk (May 16, 2010)

Canadian Banks are lingering and down a bit right now, especially compared to the the TSX and S&P500. 

If I were looking to invest a ton of cash as a retiree and wanted nice dividends, I'd be loading up on Canadian banks, holding my breath, and hoping for the best.


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## jargey3000 (Jan 25, 2011)

peterk said:


> Canadian Banks are lingering and down a bit right now, especially compared to the the TSX and S&P500.
> 
> If I were looking to invest a ton of cash as a retiree and wanted nice dividends, I'd be loading up on Canadian banks, holding my breath, and hoping for the best.


...interesting comments pete, I've been considering doing just that....but procrastinating - as usual....


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## P_I (Dec 2, 2011)

It is not an easy choice and everyone's circumstances and risk tolerance are different. Presumably the OP already has an investment policy statement that guides their investment strategy and asset allocation. 

So what to do? Educate oneself. Vanguard has a paper that I found helpful to examine my risk tolerance and approach, Invest now or temporarily hold your cash?.


Vanguard said:


> At some point in their lives, investors may receive a large sum of cash, such as a pension payout or inheritance. Finance theory and historical evidence suggest that the best way to invest this sum is all at once according to an investor’s asset allocation. Many investors nevertheless choose to put the money to work over time, a systematic implementation plan that is commonly referred to as dollar-cost averaging. We explore the benefits of both strategies, quantify the costs, and reach three conclusions that can guide decision-making.


It is a short paper, 8 pages in all, so a quick and easy read. 

They do offer that,


Vanguard said:


> Though the data demonstrate that immediate investment has, on average, outperformed, those who choose a systematic investment plan are likely more concerned about worst-case scenarios than averages or probabilities.
> 
> For investors with a large cash balance on hand, the stakes are high. Out of worry that an investment will quickly lose value, they may gradually ease into the market. Such an approach can minimize feelings of regret by providing short-term, downside protection against a rapid decline in a portfolio’s value.


Personally I've had two instances to test out my personal risk tolerance, one in Q3 2018 when we had also sold an income property and the markets looks long in the tooth and somewhat expensive. In both instances the choice was to invest it all at once. If you remember, Q4 2018 wasn't the best time for equity markets. Nevertheless I have zero regret with the approach taken and would do it again if/when another lump sum comes our way. 

Whether that is the correct approach for the OP is completely up to them and their risk tolerance. As I said, reading the Vanguard paper helped educate me on the factors that I should consider before making my choice. The OP, or anyone else facing this situation, should educate themselves and make the choice that best suits *their needs*.


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## agent99 (Sep 11, 2013)

peterk said:


> Canadian Banks are lingering and down a bit right now, especially compared to the the TSX and S&P500.
> 
> If I were looking to invest a ton of cash as a retiree and wanted nice dividends, I'd be loading up on Canadian banks, holding my breath, and hoping for the best.


You might want to Google "shorting canadian banks". There are many who, based on Canadian economy, do not have positive outlook for Canada and therefore , also for the banks. Personally, I would try and keep bank allocation at lower rather than higher level.


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## agent99 (Sep 11, 2013)

Rusty O'Toole said:


> I recently sold some income property and have about $500,000 to invest. I want to buy dividend stocks because I need the income but the fact that we are at the tail end of an 11 year bull market, and the market seems way overbought scares me. It would be my luck to go all in right before a major drop in the market.
> 
> Is there any way to get a decent return, without running this risk? Or should I chance it? What would you do?


In looking at re-arranging our portfolios, I have had similar questions. What would be a safe investment with decent cash flow with market at current state? One thought, is to not worry about the market valuation. Think more about the cash flow.

For equity, maybe look at the so called dividend aristocrats - the ones that have a long track record of maintaining and increasing dividends. If you invest now and the cash flow is sufficient, then don't worry about valuation dropping. You will still get your cash flow. And eventually, markets will recover (if they initially do go down) I am personally trimming out the non-aristocrats.

My other approach that not everyone here buys into, is to buy split preferreds. With these, if the markets tank, the capital side of the splits will see the losses, but the preferred side hardly at all and they continue to receive the fixed dividend. To spread the issuers risk, I hold about 5 of these. Yield in 5% range.

Another thought, is to diversify more geographically because Canada may underperform if you believe some pundits. Various ways to do this.

Maybe put some of that $500K in fixed income. Either by buying balanced funds/etfs or bonds or preferreds - Some perpetuals will yield 5% and it is dividend income. Capital may get eroded if interest rates increase, but you will still get the cash flow.

Anyway, having also been thinking about these things, those are my current thoughts.


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## jessc (Nov 11, 2017)

I've recently started adding monthly to a TD direct investing tfsa. I look at the charting on the purchases thinking, "that is doing well, am I picking the right time to get into this?" Years ago I read - "markets trend up over time" putting my faith in that line.


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## Karlhungus (Oct 4, 2013)

Rusty O'Toole said:


> If I want to speculate I can do very well in TQQQ but good opportunities only come along 2 or 3 times a year. I am looking for a steady income as from dividends to replace the rental income I no longer get.


Dividends arent magic. Selling shares creates income just the same.


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## gardner (Feb 13, 2014)

Rusty O'Toole said:


> What would you do?


I once was sitting on about 600K in cash that I wanted to earn dividend income on. The logical thing to do was to just go all in. But that is difficult to do psychologically. I started by parking the cash in HISA accounts that at least earned something. 1.6% at TD right now. You can spread money around a bit to stay under the CDIC insurance limits -- EQBank 2.3%, Laurentian 3.3%. Next I allocated a slice to go into a GIC ladder and set up two 10-way ladders (one $US and one $C). You can keep a steady 2.8% income via GICs these days.

Buying into the market was a bigger step. I was always scared to go in all at once, so I made a plan to deploy the money over a 2 year period, with so much to go in each week and used a spreadsheet to track what I was buying and how much was deployed. I picked almost all blue chip Canadian dividend payers that I chose by reading the dividend investing blogs, looking at what the index constituents were, and following, very approximately, the Argo 5-pack strategy, winding up with a 24-pack or so, roughly equal weight amongst Argo's sectors.

Maintaining the discipline to follow my buying schedule was hard. There were many weeks that the prices of likely targets seemed too high and I waited when I should have just gone in. But there were lots of dips along the way to make buying psychologically easier. It wound up taking more than two years, but a bit less than three to get fully invested but I think overall the plan was okay. The dollar-cost-averaging approach definitely made the psychological intimidation of market timing a lot more manageable.


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## OptsyEagle (Nov 29, 2009)

Contrary to popular financial planning rhetoric, *it is always riskier to be invested in cash then it is to be invested in the stock market.* That is because of the cost of being wrong is not weighted the same. If you invest in the stock market, and even if your worse fear comes about, which is unlikely, and the stock market starts going down right away, it will fix itself over time. Time alone can fix this wound.

If, however, you invest it in cash, waiting for a downdraft of some magnitude, of which, how far down, will soon become your next question, the risk of the cash position adds a untenable risk to your long term performance. The risk the cash provides is that if you are wrong and the stock market keeps going up, even if it goes back down some day and it will, you cannot be sure it will come back to the price level where your mistake of not investing, took place. Time becomes your enemy and real and permanent loss of performance can take place, as opposed to the temporary type that comes from actually being invested in stocks.

I think you probably can see what I am talking about because if you need the stock market to provide your long term returns, any time you are not in it, is a risk of permanent loss, with no assurance or precedent to recoup that lost money, if given more time.


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## Eder (Feb 16, 2011)

peterk said:


> Canadian Banks are lingering and down a bit right now, especially compared to the the TSX and S&P500.
> 
> If I were looking to invest a ton of cash as a retiree and wanted nice dividends, I'd be loading up on Canadian banks, holding my breath, and hoping for the best.



TD is where the 12k TFSA $$ went.

Of course recession is on the horizon...right behind it is another bull market...dividends are the key to not giving in to emotions.


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## OptsyEagle (Nov 29, 2009)

Eder said:


> TD is where the 12k TFSA $$ went.
> 
> Of course recession is on the horizon...right behind it is another bull market...dividends are the key to not giving in to emotions.


Whats even better is the bull market will even be stronger and go higher BECAUSE of the recession.


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## Benting (Dec 21, 2016)

Eder said:


> TD is where the* 12k *TFSA $$ went.
> 
> Of course recession is on the horizon...right behind it is another bull market...dividends are the key to not giving in to emotions.


12k only ?

Recession is great if you drip it. Get to buy more with bargain price. To me, I look at the number of shares only, seeing the number grows years after years. not the total value until I need to sell.


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## Eder (Feb 16, 2011)

Can the wife & I contribute more than 6k each this year?


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## MarcoE (May 3, 2018)

Nobody knows what'll happen to the stock market. What you can do is build a portfolio designed to perform well in different environments. Examples are the All-Weather Portfolio and the Permanent Portfolio. That way you will do well (or not lose too much) in different economic seasons.


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## AltaRed (Jun 8, 2009)

And broad market indexing. Why guess when you can own the market?


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## james4beach (Nov 15, 2012)

This is an interesting thread and it's a much more difficult issue when a lump sum is involved. I recently had 200K to invest, and here's how I dealt with it: I put half into a 6 month GIC. When the time is up (still waiting), the money will be immediately invested. The other half is being invested today. The GIC isn't there to provide a great return; it's to spread things out a bit and force myself to buy when the time is up.



Rusty O'Toole said:


> Is there any way to get a decent return, without running this risk?


Yes: use a more conservative asset allocation. Something like VCNS, 40/60, 50/50, All Weather, or Permanent Portfolio. These less volatile portfolios are less sensitive to the choice of start date (and end date). They reduce the risk of entering the market at the worst possible time.

Imagine the most conservative portfolio, 100% GICs. Would you feel comfortable deploying 500K into that? Yes, because the price doesn't fluctuate and you'd never lose money. Now imagine the portfolio is 90% GICs and 10% stock index. That would also probably be comfortable because it would mean only 50K into stocks. You can see where I'm going with this. There's a point at whicih you're comfortable, and a point at which it becomes uncomfortable.

I'm now going to give an answer that is controversial and somewhat unorthodox.

[HR][/HR]
*There's a deeper issue*.

In my non-professional opinion, your hesitation to deploy the 500K is your brain or gut telling you that you are NOT comfortable with the amount of risk you're signing up for (100% equities). I think this is a sign that you should think more about your asset allocation and desired risk level.

This hesitation should be seen as *a blessing*! I think you should listen to what you're feeling and think about it instead of suppressing it. How lucky that you are getting an insight into your feelings today, before any capital is at risk. I guarantee you this won't be your last encounter with fear of loss. At some point, your investments are going to fluctuate and decline, or there will be some very bad news about markets.

The investment industry tries to get people to suppress fears. The problem I have with this is that it doesn't work. If you think the stock market is a dangerous place today, when VIX is ultra low and the index is at all time highs, how dangerous do you think it will look when it's crashing and the media is running constant headlines about collapsing banks and economic catastrophe?

Even if you talked yourself into the 100% dividend stock idea, my sense is that you will continue to be uncomfortable. I think that during market volatility or a crash, you will be in danger of doing what the investment industry politely calls "non-optimal behaviour", such as re-arranging your holdings, trying to strategically trade or get out, etc. Or you might even sit in cash for a long time before starting, which also hurts your overall returns. These are potential destructive consequences to taking on more risk than you can handle.



agent99 said:


> For equity, maybe look at the so called dividend aristocrats - the ones that have a long track record of maintaining and increasing dividends. If you invest now and the cash flow is sufficient, then don't worry about valuation dropping. You will still get your cash flow. And eventually, markets will recover


Notice that you wrote "don't worry about valuation dropping" (a directive) when Rusty has explicitly voiced his fear about prices dropping. This is the same mistake investment advisors make. The reality is that he already has a fear of prices dropping. This gets back to my point about listening to feelings instead of trying to suppress them or override them with Vanguard-branded papers.

Personally I think investors can often get _higher_ long term returns in conservative allocations. This is due to being able to stick with the plan, remain calm during volatility, and not react badly. The conservative allocations still provide solid long term returns, with far less risk than 100% stocks.


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## Pluto (Sep 12, 2013)

I think James has some good points. Invest in dividend stocks, what you want, up to your comfort level. Do it in stages. 

Also it might be helpful to be more specific about which stocks you are interested in and evaluate them on an individual basis. Apparently CIBC is fairly cheap on a p/e basis, for example, while other dividend stocks my be over valued. Try to ferret out the cheaper ones and invest within your comfort level.


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## P_I (Dec 2, 2011)

james4beach said:


> This gets back to my point about listening to feelings instead of trying to suppress them or override them with Vanguard-branded papers.


I respectfully disagree. Your investment policy statement (IPS) and asset allocation should definite your risk tolerance and therefore guide your investments without involving "listening to your feelings". 

The Vanguard research paper I linked above provides a framework for any investor to understand their circumstances and behavioral factors. It doesn't conclude with a specific recommendation, but rather a framework to understand the factors involved in making a choice. They do however make it clear that "*the data demonstrate that immediate investment has, on average, outperformed*"


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## marina628 (Dec 14, 2010)

I received 7 figure sum in 2013/2014 after my earn out portion was completed on selling business .I am still deploying cash into dividend paying stock ,my own version of DCA I suppose but this practice has worked for me.In 2025 my plan is to quit work completely as will my husband and live off our dividends.


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## cainvest (May 1, 2013)

P_I said:


> I respectfully disagree. Your investment policy statement (IPS) and asset allocation should definite your risk tolerance and therefore guide your investments without involving "listening to your feelings".


Yes, one's asset allocation should already take into account their risk tolerance. Guess the question is does one change their allocation based on a large sum increase (i.e. become more defensive) ?



P_I said:


> The Vanguard research paper I linked above provides a framework for any investor to understand their circumstances and behavioral factors. It doesn't conclude with a specific recommendation, but rather a framework to understand the factors involved in making a choice. They do however make it clear that "*the data demonstrate that immediate investment has, on average, outperformed*"


While the vanguard paper does show mathematically that over time immediate full investment tends to produce better returns, throw ten darts at a multi-year calendar showing when to drop the sum in and you'll likely come out ahead. What it doesn't take into account is the current market conditions. If the markets are overvalued, picks your fav metrics to prove/disprove this, should one shy away from the vaguard advice?

Of course this leads to "market timing" which can be very difficult, if not impossible, to do. Many saw the 2000 drop coming a mile away, don't think the same it true for 2008 ... so what can one really do?


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## P_I (Dec 2, 2011)

cainvest said:


> While the vanguard paper does show mathematically that over time immediate full investment tends to produce better returns, throw ten darts at a multi-year calendar showing when to drop the sum in and you'll likely come out ahead. What it doesn't take into account is the current market conditions. If the markets are overvalued, picks your fav metrics to prove/disprove this, should one shy away from the vaguard advice?


Based on my read of the Vanguard paper their data analysis doesn't support your darts analogy. Lump sum tends to produce better results. But ... 

The key caveat is they don't say this approach works for everyone. There are behavioural aspects that each investor should take into account. For some investors,


Vanguard said:


> For those who choose the systematic approach, we suggest creating a disciplined program to invest the lump sum within a year. This structure ensures that cash is continually invested according to the target asset allocation while limiting the time the balance sits on the sidelines.


If that describes what is most comfortable for you or any other investor, then my takeaway is the key is the disciplined program, i.e. nth day of each month, so you don't guess whether market conditions (whatever you think of them) are favourable or unfavourable. 

Bottom line. Educate yourself and then firmly commit to a methodology. 

My $0.02.


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## agent99 (Sep 11, 2013)

james4beach said:


> Notice that you wrote "don't worry about valuation dropping" (a directive) when Rusty has explicitly voiced his fear about prices dropping.


James, Rusty, like many of us, senses that markets are near a top and we may either have a flat period or a pullback. You are likely reading too much into that. What I was saying, is that for those who are in retirement and who need cash flow to live off, portfolio value is secondary to maintaining cash flow. Others like yourself, may not see it this way. IF my portfolio produces a cash flow of $100k a year plus inflation, why would I worry what it's market value is? Now if I was selling off stock to produce income, then I might be concerned. Dividends from Aristocrats or preferreds work for us. Plus FI in registered accounts as a safety net.

Another point: Rusty is moving just part of his retirement investments from a 100% allocation in real estate. Spreading this across a portfolio of stable dividend payers directly or in an ETF, is actually a diversification.


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## hboy54 (Sep 16, 2016)

The top line question is not one I ever need to address in the context of markets being at all time highs. I don't invest in a market product, I own individual companies. At any given time I can usually see all kinds of possibilities for buying low and selling high. Of course possibilities are not certainties, but hitting say 60 or 70% right after a decade does lead to a very satisfactory long term record for the entire portfolio.


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## cainvest (May 1, 2013)

P_I said:


> Based on my read of the Vanguard paper their data analysis doesn't support your darts analogy. Lump sum tends to produce better results. But ...


The dart analogy is basically picking 10 random points in time during their back test dates in which you fully invested and, based on their data, your returns should be better than average going full invested at one time. Ok, maybe you'll need a larger sample but the point was just to say it doesn't take current market conditions into play.


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## OptsyEagle (Nov 29, 2009)

cainvest said:


> While the vanguard paper does show mathematically that over time immediate full investment tends to produce better returns, throw ten darts at a multi-year calendar showing when to drop the sum in and you'll likely come out ahead. What it doesn't take into account is the current market conditions. If the markets are overvalued, picks your fav metrics to prove/disprove this, should one shy away from the vaguard advice?


What it doesn't take into account, and I did not read it for specifics, since I think I know what it will say, is that it only shows the long term results. The problem our OP, most everyone else and I have, is that there will be 3650 days to get through before the next 10 year period is over. The probability that stocks will go up the day after you make your investment and never go back down below it, is probably about 0.0000001%, BUT that is pretty much what we all strive to achieve, since if we don't we will have some moments if not longer, of regret.

The OP's issue is not something that can be fixed with math. All the math will point to making the full investment today. Trust me, I have seen it all. The math, however, is based on probabilities and not certainties, and we all want to be certain. So in the end, this is really an emotional issue not an investment issue. Investment theory will point to making the full investment today and what the OP is grappling with, right now, is his emotions that are telling him that he shouldn't because he may have a short term or medium term period of regret. 

Personally, I would rather have the regret AND the money, then no regret and a lot less money. Just my opinion of course.


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## OptsyEagle (Nov 29, 2009)

By the way. DCA that is used frequently, in this situation, is really used to reduce and possibly avoid the feeling of regret, more then it's ability to improve one's results. Keep in mind, that the money lost to DCA is actually just "money that is not earned". Making less money then one can does not feel the same as making a lot of money and then losing some or vice versa. It is exactly the same, but it is our perceptions or feelings about it that are different and hence, that is why it is so popular. A computer would never make that mathematical mistake. Only humans do, over and over again from what I have seen. 

Nothing necessarily wrong with it. We are humans and not computers, so we have reduced the cost of our humanity to that which is lost to DCA. Possibly cheaper then what might unfold otherwise. I cannot say.


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## AltaRed (Jun 8, 2009)

I DCA'd back in 2013-2014 when I sold some property. Took me over a year to deploy it all. I would have been better to have deployed it all right away since, over the longer term, markets go up, i.e. the probability is better than 50%. 

I knew by the time 2013 was over that I should have put it all in the market, lump sum, right away. Easy to say in hindsight though, rather than the risk of regret shortly after deployment. As long as the investor knows they are most likely not investing optimally with the DCA approach, there is no reason to fuss over it.


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## james4beach (Nov 15, 2012)

I think what we're seeing here in the OP's question is an example of an investor being talked into "dividend investing" as a solution to income needs *even though* the investor really is not comfortable with the risk of 100% equities.

Rusty O'Toole can correct me if I'm wrong, but from having talked with him before, I got the sense that he's pursuing dividend investing only because of the promise of high yields. However, he is not comfortable with the idea of portfolio value plummeting 50% or 60% (stock risk). Maybe I got the wrong idea, but I'm reasonably sure that's the situation. What if he wakes up one day and the 500K balance is now only 250K. Is he going to be "cool with that"?

And this is one of the reasons I dislike the dividend investing / dividend growth cult. There's no question that the generated income stream will be solid ... I agree with that part ... but it pushes investors to sign up for much higher equity allocations than they are comfortable with. Going 100% equities is extremely risky!

Let's remember that the dividend growth cult has only really appeared after 2009, it's a result of ultra low interest policies and yield chasing. There are tons of investors (including many on this forum and possibly Rusty now) who are joining it during a bull market and have not yet seen what happens in a bear market.

Here's my prediction. Eventually, (a) stocks will plummet, (b) many dividend investors will freak out at the significant losses, (c) the investors who never were comfortable with 100% equities will bail out, (d) therefore ruining their long term returns



P_I said:


> I respectfully disagree. Your investment policy statement (IPS) and asset allocation should definite your risk tolerance and therefore guide your investments without involving "listening to your feelings".


You're assuming, incorrectly I think that someone has an IPS and asset allocation plan that came first. I don't think that's happening in many cases. I think people are sold on the dividend investing idea, and their plan becomes 100% dividend stocks, aka 100% stocks, aka the highest risk allocation possible.

Rusty: I suggest thinking hard about the level of risk you want to take with this 500K portfolio. Think about the maximum loss you'd be comfortable seeing. Perhaps this is only part of broader investments you have, so you're OK with 100% stock risk. But ultimately you have to decide the level of risk, and asset allocation, you're OK with. The great news is that any asset allocation can be used to generate whatever arbitrary level of income you need. Just routinely, like semi-annually or annually, sell off shares. *This is just as good as living off dividends*.


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## Eder (Feb 16, 2011)

Nothing beats living off dividends during retirement....no brainer imo.


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## like_to_retire (Oct 9, 2016)

james4beach said:


> Here's my prediction. Eventually, (a) stocks will plummet, (b) many dividend investors will freak out at the significant losses, (c) the investors who never were comfortable with 100% equities will bail out, (d) therefore ruining their long term returns


Wait James, you forgot (e) the smart investors jump in and pick up great stocks at bargain prices with incredible yields.

ltr


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## cainvest (May 1, 2013)

Eder said:


> Nothing beats living off dividends during retirement....no brainer imo.


Assuming one has a portfolio large enough to generate the income needed and, I gather, they want to leave money behind for others when they "cash out".


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## james4beach (Nov 15, 2012)

Since I know that dividend investors won't believe me, let me demonstrate by walking through an example of how generating cash from a diversified portfolio works very well during rough times.

Assume 500K invested in a 40% stock 60% bond portfolio [model: 20% XIU, 20% ZSP, 60% XBB] and we want to take $20,000 cash out of this portfolio each year. This will be done in a single annual sell & rebalance transaction at year end.

Let's start at Dec 31, 2000, the worst possible entry point. The investments are
100,000 XIU
100,000 ZSP
300,000 XBB

Here's how this looks at the end of 2001, using total returns
85,140 XIU
93,330 ZSP
316,920 XBB

We're now going to take out the $20,000 cash while rebalancing back to target allocations. _Watch this magic_.

The first number is the NET change where + means buy and - means sell. The second number is the resulting value.

+9,938 resulting in 95,078 XIU
+1,748 resulting in 95,078 ZSP
−31,686 resulting in 285,234 XBB

We have sold only what is strong (XBB) and the net cash this generates is $20,000. The portfolio is back to target allocations. We actually BUY stocks through this!

Now we enter 2002 with these numbers. Here's how the portfolio looks at the end of 2002:
81,700 XIU
73,324 ZSP
313,558 XBB

This was a horrendous year in the market. Again, at year end take out $20,000 and rebalance to target allocations at end of 2002.

+8,016 resulting in 89,716 XIU
+16,392 resulting in 89,716 ZSP
−44,409 resulting in 269,149 XBB

Again, we only sold what is strong (XBB) and bought tons of stocks! "Buy low"


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## agent99 (Sep 11, 2013)

james4beach said:


> Let's remember that the dividend growth cult has only really appeared after 2009, it's a result of ultra low interest policies and yield chasing.


Do you have reference to back that up James  

The so called Dividend Aristocrats are companies that pay dividends and have consistently increased them (often at more than inflation rate) for 25 to 40+ years. Did investors only learn about them 10 years ago?


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## OptsyEagle (Nov 29, 2009)

> Nothing beats living off dividends during retirement....no brainer imo.


Assuming they don't get cut. James mentioned about a market that has declined 50%. No market ever declined 50% in value where dividends did not get cut or the viability of many of them did not get questioned.

I would say dividend investing started gaining traction after the 2000 to 2003 tech wreck. Investors got annoyed after seeing their investments rise 500%, 1000% during the boom and then drop to something a little or a lot below what they paid for it during the bust, and when that up and down ride was over, they had nothing to show for it. Those stocks paid them nothing. 

In contrast, I think I bought Riocan in the late 90s at a dividend yield greater then 12%. All the high yielders were shunned during that tech boom, in the ninety's and by the time the fallout of the other growth type stocks were done, many investors seeing the dividend payers holding up very well, started to believe that dividends were the holy grail to investing.

In my opinion, the credit crises in 2008/9 was where those dividend investors all got nicely positioned and you know what stocks took it on the chin during that bear market. You guessed it. The dividend payers. Banks, utilities with a lot of debt, income trusts that had a ponzi business model, etc. all got crushed.

Anyway, 100% stocks is 100% stocks. James is right. The investor 1st has to deal with that. Once they do, they can decide if they want dividends or not. Dividends will not save an investor that is not comfortable with the capital declining. It's a false sense of security, especially when the dividend itself is not even guaranteed.


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## like_to_retire (Oct 9, 2016)

agent99 said:


> Do you have reference to back that up James
> 
> The so called Dividend Aristocrats are companies that pay dividends and have consistently increased them (often at more than inflation rate) for 25 to 40+ years. Did investors only learn about them 10 years ago?


Quite right, as always, agent99.

As quoted in A Brief History Of Dividend Growth Investing, the author says: _"One frequent and faulty assertion is that DGI is a "recent fad." However, this assertion has no basis in reality."_ and _"What the record reveals is that intelligent investors can trace the roots of DGI back to the first publicly traded stock in 1602, through the intelligent investment approach of Benjamin Graham"_

ltr


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## hboy54 (Sep 16, 2016)

James, that is the same mathematics I run with my 100% plus all stock portfolio. Works for any set of uncorrelated assets.


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## agent99 (Sep 11, 2013)

like_to_retire said:


> Quite right, as always, agent99.
> 
> As quoted in A Brief History Of Dividend Growth Investing, the author says: _"One frequent and faulty assertion is that DGI is a "recent fad." However, this assertion has no basis in reality."_ and _"What the record reveals is that intelligent investors can trace the roots of DGI back to the first publicly traded stock in 1602, through the intelligent investment approach of Benjamin Graham"_
> 
> ltr


Good Find 

Today, I made our RRIF withdrawals. Basically one stock from each plus a little cash to make up the difference. Both dividend payers, so we will have a pay increase from our taxable accounts (that already hold mostly dividend payers)  

My big investment was for my TFSA  I had $14,000 after dumping IPL. Went with what I suggested in other thread. $5k in GIC and $9k in ZDV. Gradually moving from higher risk equities to ETFs like ZDV.


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## james4beach (Nov 15, 2012)

This DGI thing is almost a cult, IMO. I'm just trying to protect Rusty from signing up for way more risk than he really wants.

If he's cool with 100% equity risk, then by all means yes, dividends are an easy way to make it happen. I strongly suspect that 100% equities is not right for him.


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## Eclectic12 (Oct 20, 2010)

james4beach said:


> ... Let's remember that the dividend growth cult has only really appeared after 2009, it's a result of ultra low interest policies and yield chasing. There are tons of investors (including many on this forum and possibly Rusty now) who are joining it during a bull market and have not yet seen what happens in a bear market ...


Perhaps you are exaggerating to help your point?

If dividend growth investing "only really appeared after 2009", why can I remember articles recommending the method in the '80's and '90's?
There's also the "beat the TSE by buying ten dividend paying stock portfolio" from well before 2009.




james4beach said:


> ... Here's my prediction. Eventually, (a) stocks will plummet, (b) many dividend investors will freak out at the significant losses, (c) the investors who never were comfortable with 100% equities will bail out, (d) therefore ruining their long term returns


Possibly ... but then again, those I talked to who bailed killing their long term returns, didn't care whether it was dividend paying stocks or not - they bailed on all equities and typically delayed getting back into equities.


Cheers


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## james4beach (Nov 15, 2012)

Of course there were dividend focused investors for a very long time. But this is a new wave, and the evidence is in the proliferation of dividend ETFs and huge growth in AUM of those ETFs. It's easy to get swept up in the dividend investing excitement because we're both in a stock bull market (2009-2020) and bond yields are low.

This dividend stuff is harmless, except when it pushes people to:

- take more equity risk than they are comfortable with (that's my concern with Rusty)
- do amateur stock picking with zero experience
- concentrate the portfolio too strongly in e.g. energy/income trusts/Canadian banks
- compromise their diversification


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## james4beach (Nov 15, 2012)

Here's a "middle of the road" solution that combines dividends with sales, while keeping a diversified 50/50 portfolio. This is pretty similar to what I will be doing myself.

Let's say that with 500 K invested, you want to generate 20 K cash a year (4%). Why not do the following?

50% in XBB, or ZDB depending on tax situation
25% in CDZ, or a Canadian div ETF
25% in ZDY, or a US div ETF
plus, at a fixed date (e.g. specific week in December) sell enough to sum to $20,000 cash for the year
... while rebalancing back to these allocation weights. This means you end up selling whatever is strongest.

Rusty: this builds in an element of safety that might appeal to you. The 50/50 allocation limits downside and provides stability.

Here's what that could look like. With 250K XBB, 125K CDZ, 125K ZDY, the portfolio would automatically generate ~ $15,000 a year in cash distributions. Sometimes more. Then at your scheduled annual rebalancing time, you would sell another $5,000 worth of one of the funds, to keep the weights on target. That brings the annual income to 20 K. It will always produce 20 K because you would always sell as much as needed to do so.

In my opinion this is a better way to generate 20 K income from 500 K capital instead of going 100% equities. Here you are 50/50, better diversified. These are index-like ETFs with good histories, that perform about the same as regular stock indices. It's basically a "couch potato" portfolio and you are diversified beyond Canada, too.

Is 20 K not enough? Then sell more. If you need 30 K then sell $15,000 each year to add up to 30 K. Whether you do this using dividends, or selling, or a mix of both, makes no difference for capital preservation. For example a dividend stock portfolio that pays out 30 K in dividends (6%) runs the same high risk of depleting capital as selling.


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## lonewolf :) (Sep 13, 2016)

The spread between US corporate triple B & double B bonds is @ least a 26 year low which is as far back as Barkley has tracked. This reflexes a desperation for yield. When desperation for yield is hitting all time highs would it not be better to take the other side of the trade & not buy based on yield i.e., buying stocks for a dividend.


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## cainvest (May 1, 2013)

Rusty O'Toole said:


> I am looking for a steady income as from dividends to replace the rental income I no longer get.


BTW, is there a ball park figure of how much income you're trying to replace?


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## Rusty O'Toole (Feb 1, 2012)

cainvest said:


> BTW, is there a ball park figure of how much income you're trying to replace?


These days you have to take what you can get. I am aiming for around 4% dividends which is possible with good stocks if you watch your chances.


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## james4beach (Nov 15, 2012)

Rusty O'Toole said:


> These days you have to take what you can get. I am aiming for around 4% dividends which is possible with good stocks if you watch your chances.


Are you planning on creating portfolio of individual dividend stocks to achieve 4% or are you open to using an ETF?


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## GGuy (Mar 21, 2018)

Very timely discussion as I am in a similar conundrum. That is how to generate income in retirement but balance against stock market risk.

Considering the overbought state of the market I am currently taking some profits and trying to get back to a 60/40 allocation but as I trim stocks I am at the same time reducing my dividend income. And for me the "sleep at night" exposure is max 60% stocks which still satisfies my stock allocation to meet my VPW withdrawal target so I'll continue to trim until I get there.

But of course replacing that same level of dividend income stream with fixed income is impossible. Bonds are paying so little I'm simply parking my 40% fixed income in HISA accounts (Steinbach Credit Union paying 2.6%) and waiting for a pullback to add to my dividend holdings - all Canadian banks, BCE, T, ENB, MFC, a few others plus 10 more US div payers. 

James, I do think your "middle of the road" solution is good however as I said, I substitute HISA for bond funds and pick my own dividend stock portfolio in place of your dividend ETF's. I can get better yield picking my own stocks (risk is approx the same) and my HISA is actually safer than bond funds and yields equivalent.

I'm still considering going 100% div stocks generating approx 5% yield and then never looking at the markets again as some other retirees have posted but can't bring myself there yet...


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## kcowan (Jul 1, 2010)

GGuy said:


> I'm still considering going 100% div stocks generating approx 5% yield and then never looking at the markets again as some other retirees have posted but can't bring myself there yet...


I think that is a good idea if you always consider total return for every stock selection. Even though I am a dividend return advocate, I do hold a couple of stocks that would never pass a dividend-only screen (LULU & AAPL).


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## james4beach (Nov 15, 2012)

I think trying to stock-pick your way into a 5% yielding portfolio is a recipe for trouble. This already blew up on people who tried doing it with energy/Canroys, income trusts, US mortgage holding cos, and junk bonds (I'm listing past yield chasing disasters)

I do agree you could pull off 4% and Rusty, you can even do this using an ETF. Take a look at CDZ or ZDV. Only downside is these are Canada-only and 100% equity risk.

Personally I still think the danger of non diversified 100% equity is unnecessary. As I posted above, you can easily get 3% in a diversified, lower risk portfolio, with another 1% coming from sales. Yes it's a tiny bit more work but personally I think the reduction in risk is worth it. Ultimately it depends on how you weigh the need for automatic income vs risk.


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## humble_pie (Jun 7, 2009)

james4beach said:


> I think trying to stock-pick your way into a 5% yielding portfolio is a recipe for trouble. This already blew up on people who tried doing it with energy/Canroys, income trusts, US mortgage holding cos, and junk bonds (I'm listing past yield chasing disasters)



just a humble pov here ... but a 5% dividend yielding portf from today's market sounds unreal & unattainable save by buying the questionables, ie the ponzi schemes, the debt overloads to pay exaggerated dividend, etc.

Rusty was talking 4% dividend yield which imho is barely doable. The 3-4% range appears credible & possible these days. Prudent management would perhaps hover down to the 3% level. These days.

we're talking about new money, cash to be invested at these lofty market levels, right? certainly parties who invested a decade ago are now sitting on yields-on-cost that should keep them happy for the rest of their lives.

but new money is another story. Me i've been topping up established positions that have large capital gains in order to raise the cost base. Most of the time this also increases the dividend payout.

any positions that are 100% new to me are in the form of short OTM puts. Even those are cowardly far-out-of-the-money puts (it's a mildly bullish strategy hedged by cowardice.) Other than put sales i have not set up a totally new position for close to 2 years.


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## AltaRed (Jun 8, 2009)

GGuy said:


> I'm still considering going 100% div stocks generating approx 5% yield and then never looking at the markets again as some other retirees have posted but can't bring myself there yet...


I see a lack of diversification and disregard for focusing on healthy companies with strong ROC, ROE and thus earnings growth, never mind a fixed income component for portfolio stability. A 30-50% haircut in the next recession will test the stamina of even the most robust retiree's constitution. But we continue to argue the same shite over and over again. Push this yield model at your own peril.

For myself, I insist on some global diversification, some fixed income reserve and can do it for minimum 3% portfolio yield. At most, I could see myself at 3.5% yield.


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## agent99 (Sep 11, 2013)

I would not suggest anyone go to 100% equities for overall portfolio. Even Dividend payers. Ratio depends on age, but for those at or near retirement, you should have a safety net of about 40% fixed income. Some of that could perhaps be preferreds.

Some here say it is not possible to have a portfolio that yields 5%??? We have two unregistered accounts, and they both have yield in that range. This is a list of some of our holdings in those accounts along with current yields;

BNS - 5%; BMO - 4.12%; TD - 4.05%; RY - 3.79%; NA - 3.87%; CM - 5.33%; ZDV - 4.69%
TRP - 4.34%; RUS - 6.73%; EIF - 5.2%; BCE - 5.18%; REI - 5.34%; EMA - 4.31%; IPL (sold) 7.69%
PFDS: Splits: DFN.PR.A 5.34%; DGS.PR.A 5.07%; PIC.PR.A 5.93%; PVS.PR.F 4.73& Perpetual: PWF.PR.E 5.93% 

In other accounts some examples" PPL 5%; POW 4.9%; FTS 3.48%; AQN 3.66%

It is not hard to select from the above (and maybe some others I don't have) to come up with a portfolio of solid Canadian companies and an overall portfolio yield of 5%. Failing that, you could just choose ZDV which most sites say has a yield of ~4.7% (BMO says 4.33, but not sure why)


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## james4beach (Nov 15, 2012)

agent99 said:


> Some here say it is not possible to have a portfolio that yields 5%??? We have two unregistered accounts, and they both have yield in that range. This is a list of some of our holdings in those accounts along with current yields;


agent99, I think you are far above average in your experience/skills. You know how to manage a diversified portfolio while also managing the yield. This is not easy. Could it be that you are underestimating the amount of expertise and specialized skill required to do this?

When I started stock picking, even though I had years of prior stock experience, my portfolio was garbage for the first two years. I wasn't handling sector diversification and concentration properly. And once I addressed that, I was still poor at managing volatility (added too many high beta names). It probably took me 4 years before my individual stock portfolio started becoming solid.

I think it's unreasonable to assume that a typical amateur investor, someone who doesn't already have portfolio construction skills, can suddenly create their first 100% dividend stock portfolio and get up and running right away with it. Not to mention managing it long term, which takes a certain stamina that many investors just aren't cut out for.


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## agent99 (Sep 11, 2013)

James, I agree that stock picking is not for everyone. I was just responding to the suggestion that a 5% equity return was next to impossible. When I include our foreign stocks ours was 5.67% for 2019.

However, when I look back at what we owned in 2003/4, I also made lots of mistakes. I recall buying Intel in about 2002. Surely they would benefit from the booming PC market. Nope. You mentioned Income Trusts - We had about 12% in those, but funnily enough, that is where I did best. Just lucky enough to get out just after the top with about 60% gain plus the juicy distributions.


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## james4beach (Nov 15, 2012)

The way I think about it is that as one demands/requires more "yield", the probability of making mistakes and catastrophic decisions rises. It doesn't mean it can't be done, but I think it becomes an increasingly dangerous activity.

Personally I find enough challenge in constructing a well diversified portfolio and sticking to my asset allocation. Myself, I can't handle adding yield constraints and demands on top of that.


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## AltaRed (Jun 8, 2009)

agent99 said:


> I would not suggest anyone go to 100% equities for overall portfolio. Even Dividend payers. Ratio depends on age, but for those at or near retirement, you should have a safety net of about 40% fixed income. Some of that could perhaps be preferreds.
> 
> Some here say it is not possible to have a portfolio that yields 5%??? We have two unregistered accounts, and they both have yield in that range. This is a list of some of our holdings in those accounts along with current yields;
> 
> ...


No S&P500 in there, or Europe or Asia. No bonds (prefs are equity, not fixed income). It is purposely selected for yield. I am guessing half of them don't have double digit ROE or ROC but that may not matter* for a late-in-life portfolio. In any case, that is not close to being globally diversified, albeit plenty of multi-nationals there for ex-Canada exposure.

* FWIW, there is something to be said for 'managed payout' solutions like some mutual funds and RBC's own Managed Payout Solutions where the investments pay out a percentage of ROC when annual returns cannot support stated yields. RBC has 5, 6 and 7% versions. There have been significant debates on finance forums about their value. I used to be very much adverse and against such products, but have changed my mind in recent years for late-in-life portfolios given the struggles ordinary retired investors have trying to get 'enough' from their portfolio without damaging its longevity inappropriately. These managed payout solutions use 'professional expertise' to walk that 'tight rope' rather than retail investors doing themselves potentially irreparable harm. They may be the right solution for a selected group or retirees.


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## agent99 (Sep 11, 2013)

One thing I just looked at. We own a number of foreign ADRs. Shell, Unilever, BP, Rio Tinto, National Grid. All pay healthy dividends. 

In looking to simplify, I had a look at what BMO have to offer that might replace these. They have their high European Dividend covered call ETF - ZWP. Distr yield about 7%. Sounds good, but this has not done well at all - TR almost zero over past 2 years.. I think I will stay with my stock picks!

I don't know what Alta was talking about. I made it clear that those stocks I listed were from our unregistered account. That is where we generate the cash flow we use to live in Canada. FI/Foreign investments are in registered accounts. Overall equity across all accounts yields 5.67% Mostly large national and multinational corporations.


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## james4beach (Nov 15, 2012)

AltaRed said:


> FWIW, there is something to be said for 'managed payout' solutions like some mutual funds and RBC's own Managed Payout Solutions where the investments pay out a percentage of ROC when annual returns cannot support stated yields. RBC has 5, 6 and 7% versions. There have been significant debates on finance forums about their value. I used to be very much adverse and against such products, but have changed my mind in recent years for late-in-life portfolios given the struggles ordinary retired investors have trying to get 'enough' from their portfolio without damaging its longevity inappropriately. These managed payout solutions use 'professional expertise' to walk that 'tight rope' rather than retail investors doing themselves potentially irreparable harm. They may be the right solution for a selected group or retirees.


I agree, and I also used to be opposed to these. But now I see that they provide a valuable service... they are doing the financial engineering that most investors cannot bring themselves to do.

Meaning: hold a diversified balanced fund, and get distributions + sell off whatever you need to achieve the cash target. It's a simple concept and can be done with ultra low cost index ETFs, but many people will not be able to do it for psychological reasons. It's entirely a mental hangup.

So it does actually make sense to outsource that difficult task to RBC, who will do the exact same thing. Once RBC does it within a box (the mutual fund) it pays out a regular distribution. Now it looks like the income investment that people crave.

Funny thing about these psychological hangups is you can even tell people exactly what's going on under the hood, and what they are paying that 1.5% fee for. Many people still need the second party to do it for them.

It actually is added value and that can be worth 1.5% fee


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## GGuy (Mar 21, 2018)

**Edit: Looks like agent99 beat me to it but here is my post...

Ok I did a 5 minute exercise picking a subset of my holdings to produce a portfolio of dividend paying stocks that produces an overall yield of 5.38%. So $1M invested produces annual dividend income of $53,836. 

But very frustrating because I can't get the excel to paste nicely and I don't seem to have image upload privileges either (not sure why?).

Anyway here it is. It is diversified and contains stable blue chips that never cut their dividends. Also using covered call ETF's for US and Europe but have adjusted the yield to account for the MER (not sure if you did this James in your exercises).

BCE	BCE INC	80,000	5.19%	4,152
T	TELUS CORP	80,000	4.64%	3,712
BNS	BANK OF NOVA SCOTIA	80,000	5.00%	4,000
CM	CDN IMPERIAL BK COMMERCE	80,000	5.33%	4,264
ENB	ENBRIDGE INC	80,000	6.16%	4,928
*40.00%	Total Canda 400,000	5.26%	21,056*
ZWH	BMO US HIGH DIV COVE ETF	160,000	5.42%	8,672
VZ	VERIZON COMMUNICATIONS	80,000	4.16%	3,328
RDS	ROYAL DUTCH SHELL ADR-B	80,000	6.22%	4,976
AB	ABBVIE INC	80,000	5.28%	4,224
*40.00%	Total US 400,000	5.30%	21,200*
ZWE	BMO EUR HI DIV CC HDG ETF	200,000	5.79%	11,580
*20.00%	Total Europe 200,000	5.79%	11,580*
*100.00%	Grand Totals 1,000,000	5.38%	53,836*


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## GGuy (Mar 21, 2018)

And as an addendum to my previous post here is a similar income generating portfolio but has a 75/25 mix instead of 100% equities.
It generates an overall yield of 4.80%	so an income of $48,020 on $1M invested. 
After having done this exercise I'm questioning myself why I don't just do this and simplify my portfolio. 

BCE	BCE INC	75,000	5.19%	3,893
BNS	BANK OF NOVA SCOTIA	75,000	5.00%	3,750
CM	CDN IMPERIAL BK COMMERCE	75,000	5.33%	3,998
ENB	ENBRIDGE INC	75,000	6.16%	4,620
*40.00%	Total Canda 300,000	5.42%	16,260*
ZWH	BMO US HIGH DIV COVE ETF	350,000	5.42%	18,970
VZ	VERIZON COMMUNICATIONS	0	4.16%	0
RDS	ROYAL DUTCH SHELL ADR-B	0	6.22%	0
AB	ABBVIE INC	0	5.28%	0
*46.67%	Total US 350,000	5.42%	18,970*
ZWE	BMO EUR HI DIV CC HDG ETF	100,000	5.79%	5,790
*13.33%	Total Europe 100,000	5.79%	5,790*
75.00%	Grand Total Stocks 750,000	5.47%	41,020
25.00%	Fixed Income - Steinbach CU HISA @ 2.8% 250000	2.80%	7,000
T*otal Annual Income from Investments 1,000,000	4.80%	48,020*


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## Eder (Feb 16, 2011)

ZWH & ZWE scare me to death. Do you have a registered account with a GIC ladder or something to provide a few years cash living expenses to act as insurance on the dividend stream? Then there's no need for the taxable HISA.


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## AltaRed (Jun 8, 2009)

How did you calculate that data? Did you calculate yield percentage based on today's stock price and actual last distribution annualized? 2019 distributions, or trailing 12 months? 

Or did you start with last posted yield from what source and distribution/dividend is a calculated number?

Just recognize what you have has value only for planning purposes at perhaps 1, or maybe 2, significant digits and only from real numbers chosen, not the calculated outcomes.


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> No S&P500 in there, or Europe or Asia.


But, you must admit that Canadian Blue Chip stocks are increasing their international exposure every year it seems. 

The result for the dividend investor in Canada is that they get that international exposure, combined with the generous Canadian dividend tax advantage.

It's a one-two punch, and if that's not enough, it adds a third punch, since it's also free of foreign exchange problems. 

Myself, I'll stick with Canada..........

ltr


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## AltaRed (Jun 8, 2009)

You missed the rest of it


> In any case, that is not close to being globally diversified, albeit plenty of multi-nationals there for ex-Canada exposure.


That helps a lot and there is the added advantage of the DTC, which is why I have a slightly higher allocation to Cdn equity on a first order basis than US equity. I love CNR, TD, RY, etc. too for those reasons. Still want some S&P500 for all the multi-nationals in there though regardless. Canada, at some 3% of global market cap, is still only a bit player. It is similar to saying if you were a Brit, all you would invest in is in UK stocks, or a French national investing only in French stocks, or whatever.


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## GGuy (Mar 21, 2018)

Eder said:


> ZWH & ZWE scare me to death. Do you have a registered account with a GIC ladder or something to provide a few years cash living expenses to act as insurance on the dividend stream? Then there's no need for the taxable HISA.


Why do ZWH & ZWE scare you to death? They are fine BMO products that have paid regular dividends since inception and I am comfortable with the underlying holdings. 

Yes I have registered accounts with GIC's as part of my overall portfolio. But excess fixed income and even some registered fixed income I hold in Steinbach HISA. Do you have access to any GIC's currently available to buy that are paying more than 2.7% ?


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## AltaRed (Jun 8, 2009)

Have you researched covered call ETFs? Here are a links you can start with....

https://www.theglobeandmail.com/glo...d-by-covered-call-etf-yields/article19782362/
http://www.baystreet.ca/etfs/112/Covered-Call-ETFs-Provide-Good-Income-but-Theres-a-Catch

Nothing comes free (or without a catch).

Added: ZWH Total Return performance relative to the S&P500 Total Return in CAD https://www.morningstar.ca/ca/report/etf/performance.aspx?t=0P00011VTE&lang=en-CA It may be exactly what you need/want for retirement income but it may not be if what you primarily focused on was yield percentage.


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## GGuy (Mar 21, 2018)

AltaRed said:


> How did you calculate that data? Did you calculate yield percentage based on today's stock price and actual last distribution annualized? 2019 distributions, or trailing 12 months?
> 
> Or did you start with last posted yield from what source and distribution/dividend is a calculated number?
> 
> Just recognize what you have has value only for planning purposes at perhaps 1, or maybe 2, significant digits and only from real numbers chosen, not the calculated outcomes.


I used last posted yield on TDWaterhouse just prior to my post. Not sure I need to calculate it to more than 2 significant digits?

Not accurate enough? Or am I missing something?


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## AltaRed (Jun 8, 2009)

No, anything more than 1 significant digit probably doesn't provide anything meaningful for portfolio planning purposes. 

It is more important for you to know how TDDI calculates yield to understand where the soft spots could be intuitively, if not specifically. Which is the actual base number, i.e. actual yield ($) or yield percentage? And if so, based on what? yesterday's market price, the last distribution annualized? or trailing 12 months? Rarely will it directionally change answers or decisions, BUT numbers could be way off if a particular EOY distribution or special dividend is used rather than normalized numbers.

P.S. In case you are wondering, I am not purposely focusing on you in particular in this discussion. This is more for general edification purposes for those who get focused on preciseness.


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## agent99 (Sep 11, 2013)

like_to_retire said:


> But, you must admit that Canadian Blue Chip stocks are increasing their international exposure every year it seems.
> 
> The result for the dividend investor in Canada is that they get that international exposure, combined with the generous Canadian dividend tax advantage.
> 
> ...


Alta seemed to completely misunderstand my post which was only an illustration of how easy it is to get 5% yield from an equity portfolio. I do too stick to Canada in our taxable accounts with a mix of equity and pfds. These accounts are like ATMS - churn out the cash we need to live off. It just disappears - my wife spends it! 

We have at least as much again invested in registered funds. There we do of course have a lot of FI (I mentioned that before too, but it too was missed  ) We also have foreign stocks and Canadian stocks that pay US$ dividends in our RRIFs. If we need US$, we draw that from RRIFs otherwise it sits in US$ HISAs until re-invested. I prefer Europe to US at present because Europe is still knd of depressed. Only about 5% outside Canada at present. We are on final lap, so this suits us


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## GGuy (Mar 21, 2018)

AltaRed said:


> Have you researched covered call ETFs? Here are a links you can start with....
> 
> https://www.theglobeandmail.com/glo...d-by-covered-call-etf-yields/article19782362/
> http://www.baystreet.ca/etfs/112/Covered-Call-ETFs-Provide-Good-Income-but-Theres-a-Catch
> ...


Thanks for this. 

I did understand the limitations of covered call ETF's when I purchased them. I know the call strategy limits your upside. And I am aware of the MER which I did factor into my calculations.

I paused when including them in my original post but figured it might generate some interesting opinions. Could substitute other dividend paying stocks and achieve similar results.

Also if you think the markets are due for a pull back this year then perhaps they aren't a bad holding.

"Advocates of covered call funds argue that they perform best in sideways or falling markets, and that's true – to a degree."


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## AltaRed (Jun 8, 2009)

Agreed. I added a link of ZWH performance since you quoted me....


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## Eder (Feb 16, 2011)

GGuy said:


> Why do ZWH & ZWE scare you to death?


They scare me because not only are you owning some pretty poor companies along with some good ones in ZWH but are limiting any out performance with their call strategy. Europe in general is a group of countries ranging from stellar to basket cases...why not just buy something like Siemens,Allianz and Volkswagen...much safer imo.


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## AltaRed (Jun 8, 2009)

I suspect like many of us who are getting longer in the tooth, we are not prepared to stock pick ex-Canada. Heck, I no longer have interest in stock picking Canada either. Better things to do with my time.


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## Rusty O'Toole (Feb 1, 2012)

james4beach said:


> Are you planning on creating portfolio of individual dividend stocks to achieve 4% or are you open to using an ETF?


An ETF would be good if I can do as well as with individual stocks.


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## Rusty O'Toole (Feb 1, 2012)

Some excellent ideas and discussion here. Ideally, I would like to invest my money in safe Canadian dividend stocks, draw a steady income and never have to worry about it again. Canadian stocks for the dividend tax advantage. It seems more practical to have some US investments as well, I have about half my account in US dollars and that part is up 30% in the last few years on the rise in the dollar alone.


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## agent99 (Sep 11, 2013)

Rusty O'Toole said:


> Some excellent ideas and discussion here. Ideally, I would like to invest my money in safe Canadian dividend stocks, draw a steady income and never have to worry about it again. Canadian stocks for the dividend tax advantage. It seems more practical to have some US investments as well, I have about half my account in US dollars and that part is up 30% in the last few years on the rise in the dollar alone.


Sounds like you already may have enough US exposure?

As I try and simplify, I have started to sell some higher risk stocks and replace them with ZDV for the moment. Reading the article NFL61 posted, it seems it may be prudent to buy some ZWC which is same thing with covered calls that could boost income in a declining market. 

I was also interested in LQD which invests in US corporate bonds, presently yielding 3.26%. Haven't looked at alternatives to that. But it would add some non-equity US exposure.


REgarding ZDV. Maybe someone can expain why different sites show different yields:

https://www.theglobeandmail.com/investing/markets/stocks/ZDV-T/ 4.67%

https://web.tmxmoney.com/quote.php?qm_symbol=ZDV 4.319%

https://www.google.com/search?tbm=f...=1280&bih=587#scso=_xpMgXsyiOYLdtQaMtbf4Bw7:0 4.18%

https://www.marketbeat.com/stocks/TSE/ZDV/ 4.67%


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## james4beach (Nov 15, 2012)

Rusty O'Toole said:


> An ETF would be good if I can do as well as with individual stocks.


I think ETFs can do this, for quality Canadian dividend stocks. CDZ and ZDV are two obvious options. In my opinion both should perform similarly to the TSX index long term.

For your "set it and forget it" goal I think an ETF will be an easier way to do this than managing your own stock portfolio. I have individual TSX stocks but I like all the work of managing it. One can't neglect a stock portfolio. If you go with individual stocks you *must* keep monitoring them forever, at least taking a serious look every year or two.


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## AltaRed (Jun 8, 2009)

agent99 said:


> I was also interested in LQD which invests in US corporate bonds, presently yielding 3.26%. Haven't looked at alternatives to that. But it would add some non-equity US exposure.


Fully 50% of the ETF holdings are BBB credit rated. One notch above junk barely qualifies as fixed income for portfolio stability.




> REgarding ZDV. Maybe someone can expain why different sites show different yields:


Different methods of calculation. This is the dilemma with focusing on yield percentages. It is a calculated number with both the numerator and denominator moving targets depending on the source and is only valid for one instant in time.


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## james4beach (Nov 15, 2012)

One recommendation I have about the dividend ETFs is to forget about the yield it shows. Look at the actual distribution history and tax characteristics of last year.

Disregard the large year end distribution, since that includes capital gains. Focus on the portion of distributions that are pure dividends. Last year's tax characteristics table will give some indication of that.

The other useful trick is to look specifically at the dividend policies of the top holdings, maybe the top 20 or 30 as a sample. This will tell you the actual dividends of the corporations instead of the soup of divs + CG + ROC which is what gets spit out.

I'm not in this game, as you all know, but if I was the main thing I would do is create a spreadsheet with at least 30 rows of the largest holdings. I would delve into each corporation to look at its current dividend policy. Then I would apply an adjustment factor: if the corporation is solid, no change. If the corporation is more tenuous (e.g. resource industry or very large payout) then I would project some dividend cut like 33% reduction. The idea being that you want a conservative estimate of dividends going forward.

More tenuous companies *will* cut their dividends in the next serious recession.

I suspect if you do that, you will find better dividend potential from CDZ vs ZDV but that's just a guess without doing the analysis. Although the ETF holdings will change, doing some analysis like this should give you a good idea of the general shape of the companies they hold... I think it would be a very worthwhile investigation, especially since you are committing to this fund manager for many years to come!

The last thing you want to is first wait for the market to crash, see a dividend reduction, and then sell the fund. Nope. You're in it for the long haul... choose carefully.


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## agent99 (Sep 11, 2013)

james4beach said:


> One recommendation I have about the dividend ETFs is to forget about the yield it shows. Look at the actual distribution history and tax characteristics of last year.


That sounds like a good idea. I am only just starting to look at ETFs. I have bought some ZDV and I based that on the yield on the BMOIL site which was the lowest. I will see if I can find a break down for 2019. I also bought some XRE and ZRE but those are in TFSAs where breakdown is not as important.

To evaluate a number of different etfs in such detail, would take a lot of work. Maybe understanding how each site and or manager comes up with their number would help. Presumably those here who own ETFs already know all of this?

The difference in the numbers doesn't obviously have anything to do with the moment in time they were posted. The numbers I posted were, I believe, all live numbers gathered in a short time frame.

OK, found the XDV figures. It appears that there is often a small end of year ROC number. So far for 2019, that has not been posted.
Dividends for 2019 total 0.78 which at current price is about 4.3% yield (same as BMOIL) In 2018, there was an end of year ROC payment. that increased the distr to 0.82. Hard to see where the other sites got their 4.76 yield from, unless they know more than is posted at BMO.










This is the end of 2019 fact sheet. If final, then it confirms yield was 4.4% at year end price. 
https://www.dropbox.com/s/4prnzwz0tfjovpe/ZDV_Factsheet (1).pdf?dl=1

So far, this seems to me like like a reasonable choice for some of our Canadian Equity holdings.


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## AltaRed (Jun 8, 2009)

The breakdown of the distribution, including ROC, usually come about the time of T3 tax slips at the end of March, best that I know. I've never cared to look for it before then. ROC is part of the yield.... it just is not currently taxable. It is deferred to when the ETF is sold.

For all the years I have owned equity ETFs, I have never bothered to look/analyze distribution data, nor to care what yield percentages are posted on the various sites. Total return either from the provider's site or Morningstar is what I look at. Only with bond ETFs, do I look at distribution history to see the direction/trend of distributions.



> The difference in the numbers doesn't obviously have anything to do with the moment in time they were posted. The numbers I posted were, I believe, all live numbers gathered in a short time frame.


You are missing the point I have previously made. 
- Does the particular site use the last distribution annualized? or trailing 12 months? They will be different numbers in the numerator.
- Does the particular site use yesterday's close in the denominator? Or the end of the previous month? Previous week?

There is at least 4 different outcomes for the yield percentage calculation just based on the examples I used. Which is why unless you look at the specific methodology used by the particular site, the yield percentage is at best ballpark.


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## lonewolf :) (Sep 13, 2016)

If I was buying stock now I would buy CAS last 29 years (my trade miner needs to be up graded to get current numbers) 97% win with average profit 20% buy January 23 sell June 2nd. On $100 largest win $85.40 only one loss of $1.32


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## kcowan (Jul 1, 2010)

lonewolf :) said:


> If I was buying stock now I would buy CAS last 29 years (my trade miner needs to be up graded to get current numbers) 97% win with average profit 20% buy January 23 sell June 2nd. On $100 largest win $85.40 only one loss of $1.32


IBM used to have a similar cycle: sell ahead of earnings and buy back within a few weeks. Then the market finally adapted to their weak earnings. It used to return 10-12% in that short period.


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## Dezstaples (Jan 28, 2020)

Drop me a line


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## AltaRed (Jun 8, 2009)

Dezstaples said:


> Drop me a line


 That was certainly informative.


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## Dezstaples (Jan 28, 2020)

Sorry. Some reason can’t send a message


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## james4beach (Nov 15, 2012)

I think new users have to wait a while before private messages becomes active. It's to prevent spammers from joining and then sending messages to everyone.


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## Rusty O'Toole (Feb 1, 2012)

If you have something useful to say why not post it where everyone can read it?


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## :) lonewolf (Feb 9, 2020)

Since early January I have been buying the cryptos I have not put this much on the table since buying out of the money put/leaps in 07. This is a very good time to invest though crypto for @ least a year is the place to be


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## Jimmy (May 19, 2017)

I am in the same situation now & glad I found this thread. Had some proceeds from a property sale ~ $140k. Problem is most everything now is overvalued. S&P 500, EAFE, TSX a little especially utilities and some other safer sectors.

The FI I can put ~ 40% into CSAV HISA ETF and not worry about. Decent 2.1 ytm % return and wait till interest rates rise.

The equities I do not want to invest right now after the markets just rallied 3-4 % in one week rebounding from the coronavirus up about that much for the year too. That pace is not going to continue. I think I will invest over 1 year and try and at least grab a few dips.


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## james4beach (Nov 15, 2012)

Stocks have generally been "overvalued" since the early 1990s. Also, since stocks trend up over time, it's a mathematical guarantee that stocks will spend much of their time near all time highs. Anything which trends upwards will usually be at a very high price, that looks too high.

Jimmy, you are describing two simultaneous market timing plans:

1. stocks seem over valued, you're going to wait for lower prices
2. you're going to time the bond market by sitting in cash "til interest rates rise"

That's going to very hard to pull off. Hardly anyone can successfully time one market, let alone simultaneously time both stocks & bonds. You may see your plan as a low risk strategy, but you are effectively trading against every professional in the world.

In comparison, a passive asset allocation plan with fixed % targets -- where you don't adapt any of them -- is another way to do this which removes the market timing element.


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## Jimmy (May 19, 2017)

james4beach said:


> Stocks have generally been "overvalued" since the early 1990s. Also, since stocks trend up over time, it's a mathematical guarantee that stocks will spend much of their time near all time highs. Anything which trends upwards will usually be at a very high price, that looks too high.
> 
> Jimmy, you are describing two simultaneous market timing plans:
> 
> ...



The ytm on these long term bond funds is ~ 2.2% after fees at best. There is just no pt taking on the interest rate risk when you can get 2.1% in a HISA IMO. Further I don't see the Cdn economy growing any faster then 2% for the foreseeable future so we could be in this low yield environment for a few years.

As far as equities, there has been a run up of late and everything I track is well above its 200MDA and again we just had a 3% week. Here is a pic of some of the ETFs I track.









P/E multiples also are way above LT avgs. I can wait a month or two for a little 2-3% pullback. I just don't feel right dumping $ in now at peak valuations. 

However I may look at my EM allocation now. EM are more fair valued and there could be a dip from more recent bad news re the coronavirus.


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## james4beach (Nov 15, 2012)

Jimmy said:


> The ytm on these long term bond funds is ~ 2.2% after fees at best. There is just no pt taking on the interest rate risk when you can get 2.1% in a HISA IMO. Further I don't see the Cdn economy growing any faster then 2% for the foreseeable future so we could be in this low yield environment for a few years.


What if interest rates decline to 1% and then to 0% ? The bond fund will outperform.

What if interest rates gradually ramp up towards 4% over the next decade ? You would have to expertly time your re-entry into bonds, but it won't be easy to do because you (like everyone else) will be alarmed that interest rates are finally going higher. You will probably want to stay in cash. Bond funds would again likely outperform in this scenario.

What if the yield curve dramatically steepens and normalizes? The bond fund will outperform.

IMO you are forming a strategy based on the current, unusual flat/inverted yield curve. Generally, you get higher fixed income returns the farther out in time you go. The bond fund or 5 year GIC goes out farther in time, and will get a higher yield most often.

Jimmy, I have been reading the exact argument you've written on cash vs bonds for over 10 years now on message forums. You might want to consider that most people tend to think that way, and yet, cash does tend to underperform bonds & GICs over time -- as the yield curve guarantees.


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## Jimmy (May 19, 2017)

I know and agree and your pts are well taken. But even re balancing you would be taking some bond profits now. Just trying to be tactical. IMO I think we are in a lower growth environment too than in the past. Even still I wouldn't lose sleep if bond yields rose to 2.5% and I was still in cash at 2.1%.

I am really far more worried about the equity valuations.


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## Eder (Feb 16, 2011)

Jimmy said:


> I am really far more worried about the equity valuations.


Scenario's show the best time to buy equities is when you have the money to invest. If RY say pulls back 5% do you buy or worry that it is otw to a 15% pullback....as Costner said in Bull Durham..."Don't think, Meat!"

(If your horizon is long term)


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## MrMatt (Dec 21, 2011)

Timing is a losing game.
Make a plan, follow your plan.

I know more than a few people who put off their plan to eek out just a bit more, and ended up paying dearly.
One of them delayed cashing out for his retirement.. at the end of 2008.


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## Jimmy (May 19, 2017)

Eder said:


> Scenario's show the best time to buy equities is when you have the money to invest. If RY say pulls back 5% do you buy or worry that it is otw to a 15% pullback....as Costner said in Bull Durham..."Don't think, Meat!"
> 
> (If your horizon is long term)





MrMatt said:


> Timing is a losing game.
> Make a plan, follow your plan.
> 
> I know more than a few people who put off their plan to eek out just a bit more, and ended up paying dearly.
> One of them delayed cashing out for his retirement.. at the end of 2008.


I agree but markets are off to a very fast start- up 3% last week alone so very toppy. I am not trying to 'time' the markets. Just DCA in over maybe a few installments over maybe 6 mos or a year vs a huge lump sum now for my peace of mind.

EM I will add to now. There is a little dip due to corono taking place in their markets today actually. Everything else maybe wait for a little 2-3% dip and DCA.


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## james4beach (Nov 15, 2012)

I understand the hesitation to put all the money in at once and I think averaging in with several instalments is a sensible thing to do. I was sitting on a big chunk of cash a few months ago. I invested half of it immediately, and put the rest in a short term GIC. Once that matures in a couple months, I will invest that too.

Admittedly, I lost performance while I delayed investing that second half but I still like the idea of spreading it out a bit.

And I still think the best way to address the concern about chronically high equity valuations (or danger of a stock market bubble) is to reduce the % weight in equities. Consider this asset mix:

30% stocks (15% TSX index and 15% S&P 500 index)
70% bonds (50% XBB regular bonds and 20% XSH short term)

The return since 2013 was *6.5% CAGR* and longer term return should theoretically be around 6% CAGR. To me that seems like a perfectly good result, pretty strong performance, without taking much equity risk.

Here's a link to that 30/70 portfolio showing a graph of the result, with performance statistics.


_Edited to add this aside_: in the above portfolio, if you replace XSH with gold, then you get my exact allocation. Here is a link to that portfolio showing 6.67% CAGR. I just didn't want to bother the board with my loony ideas about holding a weight in gold. But personally, I think gold is a useful asset for diversification and hedging. Historically it has helped protect portfolios from various catastrophes including the catastrophe of buying stocks at their all time high. So perhaps someone who is afraid of getting in at the worst possible time should consider this kind of approach.


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## sags (May 15, 2010)

The coronavirus is already causing losses to global stock markets, and it will only become bigger because of world dependence on China as both manufacturers and consumers of products.

The supply chain of so many businesses is attached to China, either directly or through third party suppliers.

The auto companies are already shutting down plants all over the world due to a lack of parts. Millions of Chinese are quarantined and won't be out working or shopping.

I think investing more money today would be a risky venture.


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## OptsyEagle (Nov 29, 2009)

Shipping demand, to/from China is dropping like a lead balloon. Right now you can buy a long term charter for transporting bulk shipments, on a Panamax ship, to China, for around $2,300 per day. It costs about $5,000 per day to run the average Panamax ship. That is a pretty ugly shipping picture. The Baltic dry index is also at a low that I have not seen for quite a while, either. 

I should point out that these numbers started getting pretty bad a few months before the virus, but lets just say the virus certainly did not help them any.


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## hfp75 (Mar 15, 2018)

james4beach said:


> 30% stocks (15% TSX index and 15% S&P 500 index)


Your Canadian weight is disproportionately high.... why not just own the sp500.... many arguments supporting just SP500 or a whole world index....


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## james4beach (Nov 15, 2012)

hfp75 said:


> Your Canadian weight is disproportionately high.... why not just own the sp500.... many arguments supporting just SP500 or a whole world index....


Remember 2000 - 2013 ? In CAD, the annualized returns over these 13 years were 4.0% CAGR for Canada and -1.3% CAGR for the S&P 500

That's a negative return for the S&P 500 over more than a decade. I think there is value in diversifying between these. Reduce the Canadian weight if you want, but I'd say don't bet too heavily on just the S&P 500.


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## AltaRed (Jun 8, 2009)

Recency bias plagues even the best investors. How soon they forget. FWIW, I don't see Canada outperforming in the same way it did in the first decade simply because the super commodity cycle is over BUT Canada has a pretty reasonable chance of keeping pace, and perhaps exceeding S&P500 in the current decade. It depends on what segments of our economy do well and whether the tech boom maintains momentum in the USA.


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## james4beach (Nov 15, 2012)

AltaRed said:


> Recency bias plagues even the best investors. How soon they forget. FWIW, I don't see Canada outperforming in the same way it did in the first decade simply because the super commodity cycle is over BUT Canada has a pretty reasonable chance of keeping pace, and perhaps exceeding S&P500 in the current decade. It depends on what segments of our economy do well and whether the tech boom maintains momentum in the USA.


I think that's exactly right. It's so easy to fall into the recency bias and return-chasing trap. I've certainly made that mistake over the years, for example, when I under-weighted the US for a long time because of that 2000 - 2013 period. That was a mistake too.

Canada, historically, has had performance similar to the US and I don't see why this would not continue. I think both the S&P 500 and TSX will experience 'reversion to the mean' and with similar expectations of long term return, I don't see why you wouldn't want to hold both.

I think going 100% US or 100% into any one market would be a big mistake.


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## james4beach (Nov 15, 2012)

I charted SPY (S&P 500) against XIU (TSX index) as far back as both go, and put them on the same currency. The result is very interesting: they both have the exact same total return since inception! Both have been good investments. They have the same 20 year performance, but were strong at different times.
http://schrts.co/EBtQajah









This also shows you that, contrary to popular opinion, the TSX index has been a very good investment. After all, everyone acknowledges that the S&P 500 has been a terrific investment. And the TSX has matched the S&P 500 over 20 years.


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## Jimmy (May 19, 2017)

james4beach said:


> I understand the hesitation to put all the money in at once and I think averaging in with several instalments is a sensible thing to do. I was sitting on a big chunk of cash a few months ago. I invested half of it immediately, and put the rest in a short term GIC. Once that matures in a couple months, I will invest that too.
> 
> Admittedly, I lost performance while I delayed investing that second half but I still like the idea of spreading it out a bit.
> 
> ...


Thanks. Right now I just have it sitting in cash or HISA ETFs in 3 accounts. I am looking at going 50/50 once everything is invested. The valuations for ZLB, XMS and all the low vol ETFs are silly right now but TLV (Invesco uses SD and has slightly different sectors real estate, financials ) is not too bad. Utilities and some other defensive sectors are way overvalued. This site from Morningstar is a good chart of the valuations of the US market and its sectors. Overall it is 5% overvalued. It shows utilities are 20% overvalued.https://www.morningstar.com/market-fair-value

I may hold off on EM for maybe a month now too until all the effects of corono are priced in and after reading some of the comments here. About the only thing I feel a little confidence in are PS. They are battered and interest rates here are at or near recent lows and pay a nice ~ 5.3% ytm.


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## Pluto (Sep 12, 2013)

I think it is an OK time to invest. I'm in a similar situation to the OP with cash to invest. Just organizing my buy list now. Tentative buy list for income: 1) Enb, 2) CU, 3) Maybe BCE as 5g may help there. For growth: add to 1) BAM.A 2) OTEX I'd like to buy more BYD but it seems very pricey right now. maybe later once the euphoria wears off. 

that should just about take care of my cash. That will give me 14 stocks in my non registered account. ( I paired it down from 30 stocks. Lot of crap accumulated in there.) I'm a little wary of ENB as I'm not sure their earnings are truly covering the dividend. Have to give it more thought. I don't buy this idea that dividends come from cash flow, so earnings don't matter. Doesn't add up to me.


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## Rusty O'Toole (Feb 1, 2012)

Update: Still haven't committed to new investments except for a few drug company shares bought last week. I don't feel so dumb now.


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## james4beach (Nov 15, 2012)

Rusty O'Toole said:


> Update: Still haven't committed to new investments except for a few drug company shares bought last week. I don't feel so dumb now.


Nice! That was a lucky break.


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## marina628 (Dec 14, 2010)

Too many threads this week speaking of the current market situation but I thought I would put this here.My son recently got a good job with significant income and RRSP Match so he is sitting on $13300 cash in his RRSP ,I try not to get into his stuff as we are in completely different situations .He is 27 and this is his entire RRSP account what US stocks would you guys recommend for him? This will be for his retirement never going to use it for home buyers program etc.I want him to stick to US Stocks as he has only CAD in his TFSA that we have been building for him the past 8 years.


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## james4beach (Nov 15, 2012)

One option are these ETFs which contain entire portfolios. In Canada we have VBAL etc but there are a collection of these in the US which actually are much better established than the Canadian ones, longer track records. These could be a good option for someone starting out in investing because they are simple, all-in-one funds that trade like stocks (so he gets to try out stock buying). They contain well diversified portfolios that are very appropriate for long term holding

AOM: moderate allocation, 40% stocks, has returned 7% annually
AOR: growth allocation, 60% stocks, has returned 8% annually
AOA: aggressive allocation, 80% stocks, has returned 10% annually

These returns are over 11 years and these are very strong returns. They have different levels of risk as indicated by the names and % stocks. It will be very difficult for an investor to beat any of these things long term. Certainly could be a good way to "get into the stock market" and start learning how it all works.


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## lonewolf :) (Sep 13, 2016)

marina628 said:


> Too many threads this week speaking of the current market situation but I thought I would put this here.My son recently got a good job with significant income and RRSP Match so he is sitting on $13300 cash in his RRSP ,I try not to get into his stuff as we are in completely different situations .He is 27 and this is his entire RRSP account what US stocks would you guys recommend for him? This will be for his retirement never going to use it for home buyers program etc.I want him to stick to US Stocks as he has only CAD in his TFSA that we have been building for him the past 8 years.


 Would put up to $1000 on the table of the following ethe, gbtc, etcg sell in April 2023.

On the first .618 retrace rally of SPX would put $1000 down on Dec 2022 spx puts strike 1000. Sell half near the 08 lows, the rest between June & Oct of 2022

Near the 08 lows in silver would buy some SLV or better yet silver from gold money.

The rest of the money would want to keep as safe as possible.


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## james4beach (Nov 15, 2012)

marina628 said:


> what US stocks would you guys recommend for him? This will be for his retirement never going to use it for home buyers program etc.I want him to stick to US Stocks


If you don't like the all in one portfolios, and actually want an individual stock, then I would strongly recommend Berkshire Hathaway BRK.B for a number of reasons.

It's a diversified company which holds many different segments (insurance, utilities) and is very well run, so it's virtually impossible that this company will crumble and disappear. Besides being a great company, investing in it will be an educational process. Your son can read Warren Buffett's letters (available on the web site) and also receive their annual reports in the mail. There's a lot of great info in those packages.

Finally, by being a shareholder, he can attend the annual shareholder meeting in Nebraska. It may be interesting for him to go check it out, because Berkshire makes this a real "event".

Berkshire Hathaway is one of the few companies that I can confidently say will survive any economic downturn. They are simply too well diversified, too robust, to collapse. There is huge risk in selecting individual stocks so if you're going to choose just one, BRK.B is a sound idea.


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## londoncalling (Sep 17, 2011)

I am looking at US banks myself right now (since early Feb). thus far I have looked at JPM BAC and WFC. Next will be to start looking at regionals. Of the 3 I currently favour JPM but not at its current valuation. I would be interested in seeing what replies you get Marina.


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## 1980z28 (Mar 4, 2010)

I will look at Rail and Planes for next purchases 
CP,CNR,AC,ONEX,CJT,


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## marina628 (Dec 14, 2010)

Good Morning everyone my son has $60000 TFSA(thanks mom and dad) which consists of $18000 tdb908(Nasdeq index) ,TD,CM,Telus ,FORTIS ,ENB,RY AND TDB911.I think picking US Dividend Stocks will be better long term for his RRSP.As for the US banks I do not think I want to go there as I know somebody who just bought a house with nothing down not even closing costs ,feeling deja vu .My son was very sick in 2019 ,not working for 7 months but thank God he got hired as a Visual Strategist for a big agency and literally his pay doubled from the previous job as Graphic Designer.Just wanted to say thanks to the few of you who who listened the past few months .


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## james4beach (Nov 15, 2012)

Rusty O'Toole said:


> I want to buy dividend stocks because I need the income but the fact that *we are at the tail end of an 11 year bull market, and the market seems way overbought scares me*. It would be my luck to go all in right before a major drop in the market.


I want to revisit Rusty's original post from the start of January. Rusty, you were right! It seems the market was overbought and excessively high.

You dodged a bullet by not entering right at the peak. Have you been coming up with a plan for how you are going to invest? A specific strategy?

In another thread you wrote that you want to avoid stocks because of concern of weakness, but it seems to me you are avoiding them both when they are high, and when they are low. I think if you decided on your investment strategy, you would find it easier to get your investments going.


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## Rusty O'Toole (Feb 1, 2012)

james right now I am biding my time and watching the market by that I mean, the SPY or SPX meaning the overall stock market. I plan to wait until I see a bottom and the beginning of a recovery. There are certain indicators I look at. A moving average cross is about as good as anything although it is a lagging indicator. For example notice how you would have done if you bought and sold the S&P by this chart. According to Warren Buffet, if you are not into value investing, just buying a fund that mimics the S&P will beat 90% of investment professionals.


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## Rusty O'Toole (Feb 1, 2012)

I don't know why the above image is so small or how to enlarge it. It is one I used before, I took it from the File Upload Manager page on this site.


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## james4beach (Nov 15, 2012)

Rusty something has gone wrong with the site's image permissions. I noticed this before as well, people can't open attached images any more


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## m3s (Apr 3, 2010)

When you post an image you have to uncheck the default "Retrieve remote file and reference locally"

Then it will post from the original location at a reasonable size..

VerticleScope probably doesn't want to host images anymore


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## agent99 (Sep 11, 2013)

m3s said:


> When you post an image you have to uncheck the default "Retrieve remote file and reference locally"


I find best way to post an image link, is to just wrap the link in html image tags







. If I don't have a link, I put the image in a file hosting service like Dropbox or Onedrive or your favorite. Those will provide a url. Here is an example.


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## m3s (Apr 3, 2010)

Yea that does the same thing. Usually that is the default for the image button..


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## james4beach (Nov 15, 2012)

Rusty, curious if you have developed any plans over these last few months, on how to invest your $500,000 ?

Have you thought about what % stocks you are comfortable holding? If you hold 100% stocks then you can get really wild fluctuations, for example, the recent 37% crash would have meant seeing your 500K shrink to 315K before rebounding. And we have no idea if there's more crashing to come. Stocks could easily drop again.

Myself, I can't imagine 100% stocks (whether they pay dividends or not). The ride is just too crazy and stressful, for me.


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## james4beach (Nov 15, 2012)

james4beach said:


> And I still think the best way to address the concern about chronically high equity valuations (or danger of a stock market bubble) is to reduce the % weight in equities. Consider this asset mix:
> 
> 30% stocks (15% TSX index and 15% S&P 500 index)
> 70% bonds (50% XBB regular bonds and 20% XSH short term)
> ...



Just repeating this from a few months ago, because I still think this could answer Rusty's original question. To generate income out of this portfolio, just sell units once in a while, perhaps twice a year on a fixed schedule. On top of that you will also get distributions from all the ETFs.

Rusty, if you had invested the 500K like in the example portfolio I have above, today you'd have 503K (total return). That's far better than what most investors have seen! Now imagine it's time to generate some cash out of the portfolio. Since you'd currently be overweight XBB, you'd sell some of that to extract cash, obeying the asset allocation target weights.

In my opinion, a conservative portfolio allocation with periodic sales to extract cash is a great way to invest when someone needs ongoing income. It's exactly what I do.


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## Rusty O'Toole (Feb 1, 2012)

I've been dabbling in my old faithful TQQQ trade which I described before. It has gone from 32.27 on March 23 to 74 today. I didn't catch the whole move but I got a nice chunk of it. The only thing that held me back, was all the doom and gloom in the news made me doubt the technical indicators. Once again the technical indicators were right, the news was wrong. The more I work with this thing the more confidence I have in it.

I still want to invest in dividend stocks and go fishing but I'm still scared of losing my money. Is the market recovering or is this a typical 50% retracement leading to the next leg down? Wish I knew.


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## james4beach (Nov 15, 2012)

Rusty O'Toole said:


> I've been dabbling in my old faithful TQQQ trade which I described before. It has gone from 32.27 on March 23 to 74 today. I didn't catch the whole move but I got a nice chunk of it.



Congrats Rusty. I'm glad to hear that trade worked, but it will be very hard (I would say impossible) to get a reliable profit from this kind of trading, in the long term. You're trading against professionals on Wall Street. I'm just being brutally honest: you can't win in the long run.

I only learned this lesson after about 10 years of investing: you need to start investing passively, without making active trades. You can do this with the couch potato / asset allocation method (which I realize you don't like) but you can also do it with dividend investing.



Rusty O'Toole said:


> I still want to invest in dividend stocks and go fishing but I'm still scared of losing my money. Is the market recovering or is this a typical 50% retracement leading to the next leg down? Wish I knew.


There's no way to know if the market is going up or down from here. This is the risk in stocks... we have no idea where they will go. There's no way around this problem. So while dividends are good passive technique, in a way, you have to "let go" of the problem of price movements because that uncertainty (and risk) will always be there.

Let's say you use dividend ETFs, like ZDY (for US) and CDZ (for Canada). The dividends will be pretty stable. Make sure you don't try trading the ETFs... you must buy & hold.

Why not gradually scale into the investment? With your 500K, you can start with: 100K dividend stocks + 400K GICs

Then, every year, buy another 100K of the dividend ETFs from the maturing GICs. Eventually you will be entirely in dividend stocks.

There is no way to avoid the fluctuation in stock prices. If you want to invest in dividend stocks, you are going to have to get comfortable with the possibility that the market plummets... there's no other way to do it. That risk comes with stocks, always.

But starting with 20% div ETFs + 80% GICs, and gradually adding to your div ETFs, will be a more comfortable way to get to the eventual goal of totally passive dividend investing.


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## Rusty O'Toole (Feb 1, 2012)

duplicate post please disregard


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## Rusty O'Toole (Feb 1, 2012)

james4beach said:


> Congrats Rusty. I'm glad to hear that trade worked, but it will be very hard (I would say impossible) to get a reliable profit from this kind of trading, in the long term. You're trading against professionals on Wall Street. I'm just being brutally honest: you can't win in the long run.
> 
> I only learned this lesson after about 10 years of investing: you need to start investing passively, without making active trades. You can do this with the couch potato / asset allocation method (which I realize you don't like) but you can also do it with dividend investing.
> 
> ...


 
James I have been following the TQQQ trade for 2 years now and the more I work it the more confidence I have in it. Would like to tell you about it but every time I post I get shot down by people who don't even bother to look at it. I could lay the whole thing out again if you were interested. But in order to see what I see you would have to download Think or Swim from Toronto Dominion (free).

I like your idea of buying dividend ETFs and legging into the position over time. It is simple and minimizes the chance of loss. Maybe I should try the training wheels first and work up to individual stocks later if at all. Do you know what the dividend return is?


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## Rusty O'Toole (Feb 1, 2012)

James more on the latest TQQQ trade.
Got a signal from my technical indicators 3/20. Did NOT want to take it because all the news said the markets were crashing. But, I have learned to have confidence in the technical indicators. Gritted my teeth and took a small position (100 shares) on 3/20 @ 37.66. That went OK so with much trepidation, added 500 @ 47.835 on 3/27. Then another 100 @ 57.26 on 4/21 and finally, [email protected] 60.98 on 4/22.

Total 1000 shares, average price 51.7034 market price 75.26 so I am up $23,556.55 in less than 2 months. It could have been multiples of that if I was not a chicken hearted chicken but, I kept a tight stop and never risked more than $1000.

Speaking of being chicken I am figuring on selling out on Monday even though it is still rising and I don't have a sell signal. I feel I have done well on the trade and am afraid this might be a typical 50% retracement within a larger bear market . The 50% level would be 75.535.

If you figure I made $23,556.55 on an investment of $51,703.40 that works out to a profit of 45.56% in under 2 months. If I had gone all in the first day it would have been twice that. Do you wonder that I like this trade?


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## james4beach (Nov 15, 2012)

Rusty O'Toole said:


> James I have been following the TQQQ trade for 2 years now and the more I work it the more confidence I have in it.



Rusty you've really had some nice trades there, and I have no doubt you have good profits from them - congrats!

My concern is just that this kind of active trading is not sustainable in the long term. I speak from experience, because in my early years of investing I tried the same kinds of things. I had a stretch of 3-4 years where I even made pretty good money from the active trading. It seemed like a good way to make money without having to commit to "buy and hold". In fact, I even made money in 2008!

Just imagine that... why would I want to passively hold an index long, and suffer a crash, when I could be nimble and trade around it. Like I did in 2008. I gained confidence doing that and I couldn't see any reason to use a passive index portfolio.

By roughly year 5, my performance was dropping. Eventually (after a few more years) I took an honest look at my results and found that -- to my surprise -- I had actually done *worse* overall than a buy & hold strategy. This only became visible with the long term results and performance tracking.

This is why, even though I successfully traded through the 2008 crash, I now tell everyone that they are better off with passive couch potato-type investing. I would have made more money if I did this from the start, e.g. methods in #105 or #134.



Rusty O'Toole said:


> I like your idea of buying dividend ETFs and legging into the position over time. It is simple and minimizes the chance of loss. Maybe I should try the training wheels first and work up to individual stocks later if at all. Do you know what the dividend return is?



CDZ yields around 5.3% and ZDY 3.8% so the two together will yield around 4.5% which I think is pretty good for a passive buy & hold. With CDZ+ZDY you would be pretty well diversified across many sectors, and two countries.


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## Rusty O'Toole (Feb 1, 2012)

james4beach said:


> Rusty you've really had some nice trades there, and I have no doubt you have good profits from them - congrats!
> 
> My concern is just that this kind of active trading is not sustainable in the long term. I speak from experience, because in my early years of investing I tried the same kinds of things. I had a stretch of 3-4 years where I even made pretty good money from the active trading. It seemed like a good way to make money without having to commit to "buy and hold". In fact, I even made money in 2008!
> 
> ...


What do you think of Morningstar ratings? Is that something you would give a lot of weight to in picking a fund?
I understand dividends are tax free up to $36000 does this go for US as well as Canadian companies or funds?


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## james4beach (Nov 15, 2012)

Rusty O'Toole said:


> What do you think of Morningstar ratings? Is that something you would give a lot of weight to in picking a fund?
> I understand dividends are tax free up to $36000 does this go for US as well as Canadian companies or funds?


I don't know what goes into Morningstar ratings (what they consider as their criteria).

For dividend ETFs, I would look at the sector breakdown and avoid anything which is overly concentrated in a single sector. For example XDIV and XDV are too heavily weighted into financials. One reason I like CDZ is that it has great sector diversification, even better than the TSX index itself. Unfortunately the MER fee is high.

I don't know much about tax treatment, sorry. I think others on this board can help with that as we have a lot of dividend investors around.


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## fireseeker (Jul 24, 2017)

Rusty O'Toole said:


> I understand dividends are tax free up to $36000 does this go for US as well as Canadian companies or funds?


Foreign dividends are not eligible.

Depending on which province you live in, dividend earnings up to $50,000 (absent other income) can be taxed as low as zero. Handy Taxtips chart here for Ontario.


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## james4beach (Nov 15, 2012)

The advantages of Canadian-based eligible dividends are one reason why dividend investors tend to concentrate into Canada. For example if 500K was entirely invested CDZ, with no other sources of income, I think there would be virtually nil taxes to pay.

Using the Simple Tax calculator, it looks like $1 million invested into CDZ, with no other income sources, also has about 1% average tax rate overall... just about no taxes.

But keep in mind that taxes shouldn't be the only consideration when choosing investments. Loading up on Canadian eligible dividends makes sense from a tax perspective, but one would also lose diversification by doing this, which increases risk. And tax laws can change.


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## cainvest (May 1, 2013)

james4beach said:


> But keep in mind that taxes shouldn't be the only consideration when choosing investments. Loading up on Canadian eligible dividends makes sense from a tax perspective, but one would also lose diversification by doing this, which increases risk. And tax laws can change.


Sticking with the same asset class what real diversification does one really lose out on?
I mean, many of the companies in CDZ have global assets and revenue.


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## james4beach (Nov 15, 2012)

cainvest said:


> Sticking with the same asset class what real diversification does one really lose out on?
> I mean, many of the companies in CDZ have global assets and revenue.


I think CDZ has pretty good diversification among industries. I wonder how much global exposure it has.

The reason I suggested CDZ + ZDY is that you also get US multinationals, so you're picking up names like Pfizer, IBM, Cisco which are global. For example, revenue from the Americas are only 50% for IBM and 60% for Cisco, so they are very global.


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## Reistar (May 21, 2020)

The global economy is staring straight into a recession. 
Now is a good time to investing in real estate, as prices are falling in key established markets. This is the most opportune time to buy property at one of the most reasonable price.


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## MrMatt (Dec 21, 2011)

Reistar said:


> The global economy is staring straight into a recession.
> Now is a good time to investing in real estate, as prices are falling in key established markets. This is the most opportune time to buy property at one of the most reasonable price.


I think we're on the edge of a depression, not the time to load up on debt IMO.


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## alexincash (May 27, 2020)

Reistar said:


> The global economy is staring straight into a recession.
> Now is a good time to investing in real estate, as prices are falling in key established markets. This is the most opportune time to buy property at one of the most reasonable price.


Not yet. I would say soon, but not yet.


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## james4beach (Nov 15, 2012)

Maybe I've joined the passive couch potato "cult" but I think there's enough uncertainty about how things are heading, that it's best to just stick to exist plans.

If I have no ability to forecast or predict whether stocks, or bonds, are going up or down, why would I take any corrective action? I truly have no clue how this is going to play out.

My permanent portfolio (All Weather) allocation is up 7% since the start of this year and up 13% from a year ago. Of course it's possible I may forfeit all those gains, but currently I see no reason to change anything I'm doing.


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## Investor87 (Dec 1, 2020)

Eder said:


> They scare me because not only are you owning some pretty poor companies along with some good ones in ZWH but are limiting any out performance with their call strategy. Europe in general is a group of countries ranging from stellar to basket cases...why not just buy something like Siemens,Allianz and Volkswagen...much safer imo.



Which poor companies are you referring to? They are all European blue chips. Plus the yield on ZWE is about 7.69% so for a 5% portfolio European exposure, it's a great choice.


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