# GIC vs dividend retirement portfolio



## martik777 (Jun 25, 2014)

I'm currently at about 70% equities but for my retirement years would like less stress by simply investing in a low risk dividend EFT or fund. I would even entertain the Moneysense Dividend all-stars strategy. The other alternative is to ladder GIC's which obviously has less growth potential.

https://www.moneysense.ca/save/investing/dividend-all-stars-2018/

80% of my portfolio is registered which is sufficient even at <2% to cover foreseeable living costs but of course I'd like to maximize growth while still feeling comfortable.

Any recommendations appreciated.


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## james4beach (Nov 15, 2012)

It's going to depend on what you mean by "low risk". Do you mean fluctuations in the value of your portfolio?

Dividend funds or ETFs will rise and fall in value the same as the broad stock market. If you are concerned about the value of your overall investments declining, dividend stocks are not any safer than regular stocks. In fact, dividend stocks may even do worse than regular stocks in a rising interest rate environment.

Instead, if you want low stress and low risk, you probably need to boost the fixed income (bond/GIC) allocation and reduce equities, for example 40% equities and 60% fixed income. Even with a passive 'couch potato' portfolio approach (for example XIC + XAW + GIC ladder), you'll get between 2%-3% yield before taxes, and some growth potential.

It could be that I'm missing something, but I don't see where dividend-based investing would factor into this, the way you described your needs. It seems to me that you need to tune your equity vs fixed income allocation to the point of comfort.


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## My Own Advisor (Sep 24, 2012)

The "A-Team" is all financials, good to own yes but also good to diversify out of as well:

Bank of Montreal (BMO) 
CIBC (CM) 
Great-West Life (GWO) 
Power (POW) 
Power Financial (PWF) 
Sun Life Financial (SLF) 
TD Bank (TD)
★ ★ ★ ★ ★

The "B-Team" has some good stocks as well but again, more financials. No utilities or REITs I suspect due to their relationship with interest rates!?

ARC Resources (ARX) 
Bank of Nova Scotia (BNS) 
CI Financial (CIX) 
E-L Financial (ELF) 
Fortis (FTS) 
Genworth MI Canada (MIC) 
Imperial Oil (IMO)
Industrial Alliance Insurance (IAG) 
Linamar (LNR) 
Magna International (MG) 
Manulife Financial (MFC) 
National Bank (NA) 
Suncor Energy (SU) 
Thomson Reuters (TRI) 
Whitecap Resources (WCP)
★ ★ ★ ★

I think a combination of ~ 20 dividend payers + at minimum 20% of your portfolio in XAW or VXC + a GIC ladder or laddered ETF wouldn't be a bad call - you could do far worse!


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## AltaRed (Jun 8, 2009)

The OP is not clear on what <2% to cover foreseeable living costs mean. Could mean that the OP will have plenty in annuity income (CPP, OAS, DB pension) to cover most expenses... or?

If that IS the case, then the bulk of living expenses is already all fixed income and there is no reason why not to be at least 60% in equities, e.g. a balanced portfolio. Seems to me the OP is looking to reduce the stress of equity investing and its roller coaster ride and passive index ETFs to handle the equities feels like a good idea. Given most of the investments are in a registered account, the dividend tax credit doesn't mean anything, but I understand the desire (I think) to have a 2+% investment income stream, if nothing else, to help fund minimum RRIF withhdrawals.

XIC + XAW + GIC ladder is a good option, or I think it is also worth considering a dividend ETF for the Cdn equity portion. CDZ and XDIV come to mind. While these may lag the market a bit in a period of increasing interest rates, that will subside once interest rates stop increasing, or even be a benefit when interest rates turn back down due to a bear market/recession. To me, it is more important to look at the longer term, e.e. 2-4 business cycles over 20-30 years of retirement, not just a knee jerk reaction to the current day.

If considering the MoneySense Dividend All-Star strategy, I wouldn't have more than 15 stocks dispersed across sectors, perhaps as low as 10 holdings if Cdn equity is, for example, only 20-25% of the portfolio. Just too many individual holdings otherwise (e.g. 15 holdings in 25% of a portfolio makes each holding only 1.67% of the overall portfolio..... results in mostly noise). It just doesn't make much sense to have less than 2%, and I'd argue even 3%, weightings in individual holdings.

Stand back and think it through. How much investing work does one want to really do in retirement when there are many better ways to spend one's time?


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> If considering the MoneySense Dividend All-Star strategy, I wouldn't have more than 15 stocks dispersed across sectors, perhaps as low as 10 holdings if Cdn equity is, for example, only 20-25% of the portfolio. Just too many individual holdings otherwise (e.g. 15 holdings in 25% of a portfolio makes each holding only 1.67% of the overall portfolio..... results in mostly noise). It just doesn't make much sense to have less than 2%, and I'd argue even 3%, weightings in individual holdings.


 I agree with all the rest of your post, but with regard to the quote above, I feel an investor can avoid the real problem of company specific trouble (opposed to sector specific or systemic risk) if they have at least two stocks in each sector they want to invest in. If you pick a single stock in a sector and it has problems, you can really feel the pinch if it represents 5%, but if you pick two stocks in a sector, then you would only have 2.5% committed. Taking care of 20 stocks isn't that much more onerous than 10.

ltr


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## james4beach (Nov 15, 2012)

AltaRed said:


> The OP is not clear on what <2% to cover foreseeable living costs mean. Could mean that the OP will have plenty in annuity income (CPP, OAS, DB pension) to cover most expenses... or?


Good questions. It's not clear from what the poster wrote so far.



AltaRed said:


> I think it is also worth considering a dividend ETF for the Cdn equity portion. CDZ and XDIV come to mind.


I agree, these can be good funds for the Canadian equity portion of the portfolio (perhaps in lieu of XIC) if someone really wants higher dividend payouts.


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## AltaRed (Jun 8, 2009)

LTR - I don't think anyone needs to be in more than 5 or so sectors, per Argonaut's 5 pack - 10 stocks in all. It's f**king ridiculous to have 20 stocks in a 25% allocation of one's net worth. Just default to an ETF in that case.


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> LTR - I don't think anyone needs to be in more than 5 or so sectors, per Argonaut's 5 pack - 10 stocks in all. It's f**king ridiculous to have 20 stocks in a 25% allocation of one's net worth. Just default to an ETF in that case.


Well, even the ever-changing Argonaut's 5 pack is now moving to a 12 pack, so I don't know if that's the best example. The 5-pack philosophy was to get alpha by choosing the best of breed companies in specific sectors and cut out the losers of the market. That required a lot of due diligence. Remember, if you aren't paying attention and one of your 5 pack has a problem, then that's 20% of your equities. Too much risk. With a larger number of equities, you can be a lot more sloppy, while taking less risk. We'll agree to disagree on this point.

ltr


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## AltaRed (Jun 8, 2009)

Yes, we will have to agree to disagree. To me, it is a matter of degree of impact to a portfolio. If I had 50% of my whole portfolio in Cdn equities, I would tend to agree with ~20 holdings. If it is only 25% of my whole portfolio, 1/20th of 25% is a pin prick and I'd go nuts with managing 20 holdings for limited impact.


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> Yes, we will have to agree to disagree. To me, it is a matter of degree of impact to a portfolio. If I had 50% of my whole portfolio in Cdn equities, I would tend to agree with ~20 holdings. If it is only 25% of my whole portfolio, 1/20th of 25% is a pin prick and I'd go nuts with managing 20 holdings for limited impact.


But it's not limited impact if you choose 5 equities. If I examine my spreadsheet and look at different sectors, and the usual suspects that investors purchase in those sectors, and look at their return, year to date:

In the Insurance sector there is: SLF at -6.8% YTD and MFC at -22.8%.
In the Telecom sector there is Telus at -5.1% and BCE at -12.9%. 
In the Utilities sector there is FTS at -8.9% and CU at -19.3%. 
In the Consumer Discretionary there is CTC-A at -9.8% and DOL at -24.6%. 
In the Consumer Staple sector there is NWC at -7.6% and SAP at -14.4%.

You can see how different the results would be if you chose a single stock in each of those sectors that represented the largest loss, compared to the smallest loss. Huge difference. There's just too much risk with only a few stocks. If you don't have the time to hold more stocks, then you should index.

Personally I hold 24 stocks (8 sectors of 3 each). You don't have to do anywhere near the due diligence on 24 stocks as you do on 5. With 5, you're on the razors edge. Way too much risk.

ltr


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## AltaRed (Jun 8, 2009)

You've just made the case for something like CDZ or XDIV.


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## martik777 (Jun 25, 2014)

james4beach said:


> It's going to depend on what you mean by "low risk". Do you mean fluctuations in the value of your portfolio?
> 
> Dividend funds or ETFs will rise and fall in value the same as the broad stock market. If you are concerned about the value of your overall investments declining, dividend stocks are not any safer than regular stocks. In fact, dividend stocks may even do worse than regular stocks in a rising interest rate environment.
> 
> ...


My understanding of dividend funds is they will likely continue to payout even in a prolonged market downturn and will exceed the return of GIC's, so fluctuations will be less of a concern. The 2% figure I mentioned is arbitrary, just enough to cover inflation, my basic income requirements will be funded from CPP/OAS and a LRIF. The registered portfolio is a cushion for emergencies. Also, I'm feeling quite anxious investing in equities given this extended bull market.


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## AltaRed (Jun 8, 2009)

martik777 said:


> My understanding of dividend funds is they will likely continue to payout even in a prolonged market downturn and will exceed the return of GIC's, so fluctuations will be less of a concern. The 2% figure I mentioned is arbitrary, just enough to cover inflation, my basic income requirements will be funded from CPP/OAS and a LRIF. The registered portfolio is a cushion for emergencies. Also, I'm feeling quite anxious investing in equities given this extended bull market.


Then it is definitely good to cut back from 70% equities. You will have to figure out the allocation you are comfortable with, and I would be tempted to go with a dividend ETF if you are (or could be) anxious with the rides of the market prices of individual stocks.


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## agent99 (Sep 11, 2013)

martik777 said:


> Also, I'm feeling quite anxious investing in equities given this extended bull market.


I agree that it's not the best time to load up with equities. But looking at the year to date data that LTR posted, those performances don't exactly look like a bull market! So there could be opportunities, but maybe not quite yet? Interest sensitive stocks like utilities that pay a good dividend may be worth looking at if current yield is high and stock will be held for the long term.

Being retired, I don't have new cash coming in to invest. But, the growth in value of our equities over the past few years has resulted in a lower fixed income allocation (percentage). No new money, so I look for opportunities to sell equities held in our RRIFs and use proceeds to add to fixed income. When equity markets were down, I sometimes did the opposite. Used funds from maturing bonds to add to equity. 

Just pointing out that it takes some rebalancing to maintain a desired Equity/Fixed income ratio.


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## AltaRed (Jun 8, 2009)

The OP is coming down from 70% equities, so is actually not buying equities on a net basis. I understand taking something off the top.


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