# What's your favourite 'lower risk' investment?



## dime (Jun 20, 2013)

What's a good 'lower risk' investment with a decent yield? There has to be something out there worth investing in that has higher return than the 'risk free' investments, and lower risk than the general equity market. But that is less affected by the possible rate increase over the next year or two. 

The best HISA yields 2% nearly risk free, a good 3 year GIC is 2%, similar to short term corporate bond ETFs, which are all about in line with inflation. The equity market could tank by 10% at some point this year, but only single digit returns expected. Is there something in the middle... say 5% yield with volatility risk of 5%?

Up to now I've been buying short term corporate bond ETFs in my TFSA. I've hoped/assumed I'd make a better return than the stated YTM-MER. I figure that using the TFSA account I at least keep 100% of the distributions. 

The short term corporate bond ETF doesn't seem to be any better than a HISA or GIC when comparing:
VSC .10% MER - 2% YTM = 1.9%
XSH .12% MER - 1.82% YTM = 1.68%
CBO .27% MER - 1.8% YTM = 1.53%


The high yield bond ETF's have not fared well lately due to the concerns of oil companies defaulting on high interest loans. 


I want the bond / fixed income component of my portfolio to help reduce the overall volatility and so I can sleep at night when the equity market corrects or goes "2009" again (It's inevitably going to happen again at some point!).

So any and all suggestions are appreciated!


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## Squash500 (May 16, 2009)

I personally like the XTR. http://www.blackrock.com/ca/intermediaries/en/products/239495/ishares-diversified-monthly-income-etf

XTR pays approx. 6% monthly yield. Distribution fairly stable. Much better then investing in a 1 year GIC that pays only 1.8% at present.

Even if the price of the XTR, falls by 6% during the year, you're still back at a 0% return for the year.

I'm personally willing to take that risk.


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## Pluto (Sep 12, 2013)

In my view there isn't anything right now, and I just accept it. I spent my early years trying to get from the market what it wasn't willing to give, and it was a dismal failure. so in a market like this, a lengthy, tired, bull market I take money off the table and just take what short bonds give. It won't be long, I think, before some great deals will be offered. I'll snap them up. Its just a matter of sitting tight in the meantime. 

I had high dividend paying stuff from 2009, and its all gone now - sold, and put into short term bonds. The income from short bonds is on the original stake, and the capital gain, so the income loss isn't that bad, and I get to keep my gain. Plus the $ is ready to hand for opportunities, such as quality dividend paying oil stock that is now in an uptrend.


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## Moneytoo (Mar 26, 2014)

Squash500 said:


> I personally like the XTR. http://www.blackrock.com/ca/intermediaries/en/products/239495/ishares-diversified-monthly-income-etf
> 
> XTR pays approx. 6% monthly yield. Distribution fairly stable. Much better then investing in a 1 year GIC that pays only 1.8% at present.
> 
> ...


I was considering XTR last year, but since it looked too good to be true - googled this article: http://www.berkes.ca/archive/XTR_analysis.pdf and passed.

*Actual Yield and Compounding Returns*

Based on the published 5.77% yield, an investor may be under the impression that they will earn 5.77% compounded return if they reinvest their distributions.

This will not work. If one takes the distribution (partly ROC) and reinvests it back into the fund, the ROC money is just being continuously recycled. Only the real investment earnings are being put to work, and the real earnings are 66% of the distribution. A quick calculation shows that:

66% x 5.77% nominal yield = 3.8% actual yield (estimate)


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## 1980z28 (Mar 4, 2010)

FTS

Everyone should have some

Have owned for years


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## Moneytoo (Mar 26, 2014)

What do you think of preferred shares ETFs? My husband has some ZPR (Canadian laddered preferreds) in his RRSP, I sold my shares in November (right before they dipped) and want to replace them with PFF (mostly US perpetual preferreds, yields more than 6%) in RRSP and maybe buy some XPF (CAD-hedged US and CA mix, yields about 5% - but not sure about the withholding tax) in my TFSA. 

Here're my notes on all 3:

*1) ZPR (100% Canadian)*
Management fee 0.45%
Yield 4.15%

*2) XPF (North-American, CAD-Hedged)*
MER 0.47%
Yield 4.96%

Holdings as of 07-Jan-2015

47.91% -*Canada
42.46% -*United States
6.87% -*United Kingdom
2.63% -*Netherlands
0.15% -*Other

*3) PFF (80% US, USD)*
MER 0.47%
Yield 6.29%

Holdings as of 07-Jan-2015	

80.16% -*United States
12.97% -*United Kingdom
4.96% -*Netherlands
1.91% -*Other


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## My Own Advisor (Sep 24, 2012)

All Canadian bank stocks:

Bank of Montreal (BMO) – paid dividends since 1829.
Bank of Nova Scotia (BNS) – paid dividends since 1832.
TD (TD) – paid dividends since 1857.
CIBC (CM) – paid dividends since 1868.
Royal Bank (RY) – paid dividends since 1870.
Laurentian Bank (LB) – paid dividends since 1886.
National Bank (NA) – paid dividends since 1980.


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## dime (Jun 20, 2013)

> What do you think of preferred shares ETFs?


Good question. The concern with preferred ETFs is the degree of interest rate sensitivity. 

I bought some ZPR and PGX during the 'taper tantrum' in the summer of 2013 when anything with yield was selling off heavily. It was the yield that attracted me.
The ZPR 'laddered' concept to mitigate rate sensitivity seemed a good idea. (The price continued to fall and now remains at the low - I'm down 6.5% on the position.) So the total return has been about nil. 

The current yield is 4.14% and it holds 123 "staggered reset dates to restrict and equalize term exposure." The theory is the laddering should reduce the effects of rising interest rates, but who knows what the equivalent duration of ZPR would be. For example if it has an equivalent duration of 10 years, it could fall 10% as rates rise 1%. 

In comparison the XPF has performed much better. 

On the US side I also traded the PGX "PowerShares Preferred Portfolio" which currently states and effective duration of 4.73 yrs and YTM of 6.22%. I sold it after the year was up at the same price I bought it for after collecting the yield. I wished more preferred ETFs gave similar stats as PGX to describe the equivalent YTM and duration of the fund.


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## Moneytoo (Mar 26, 2014)

dime said:


> The concern with preferred ETFs is the degree of interest rate sensitivity.


Yeah, I wish the interest rates would go up already - don't want to buy anything that will go down once they go up, but if they'll be raised gradually, it might take years, so need to buy at least something...

I also have a bit of RWX (international REITs ETF) - the reason behind it was that rates in other countries aren't going anywhere any time soon (or at least not all at the same time), but I'm too much of a chicken to consider international bonds


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## tygrus (Mar 13, 2012)

I held xtr for better part of last 2 years because of its dividend and that its top holdings are mostly other etfs. 

One day i loaded up all the holdings and was taken aback when i discovered a lot of junk bonds in there. Someone else said there are derivatives too. So i got out.


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## james4beach (Nov 15, 2012)

On XTR: yes it has lots of junk bonds. I'm not aware of any derivative exposure though.

I think that article describing the ROC is correct. It does not have a 6% earning yield. It's a distribution yield and the earnings yield (from dividends and interest) is much less than 6%, so I really think it's misleading


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## gibor365 (Apr 1, 2011)

> I also have a bit of RWX (international REITs ETF) - the reason behind it was that rates in other contries aren't going anywhere any time soon (or at least not all at the same time), but I'm too much of a chicken to consider international bonds


This is why couple of years ago I bought PCY (PowerShares Emerging Markets Sovereign Debt Portfolio)...
Was also considering PFF , but didn't pull trigger ....
XPF holds 50% of PFF and PFF has higher yield


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## Moneytoo (Mar 26, 2014)

gibor said:


> This is why couple of years ago I bought PCY (PowerShares Emerging Markets Sovereign Debt Portfolio)...


Ex-CCCP minds think alike  Wish I didn't purchase DEM in September thou - right before it tanked... But liked the yield and higher Russia exposure


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## gibor365 (Apr 1, 2011)

Moneytoo said:


> Ex-CCCP minds think alike  Wish I didn't purchase DEM in September thou - right before it tanked... But liked the yield and higher Russia exposure


Ha ha ... I bought DEM (also because of Russia exposure) in Dec 13 and March 14 ....  Not the best times, but at least good yield and falling CAD$ vs US$ from time I bought


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## gibor365 (Apr 1, 2011)

PGX looks also not too bad , yield 6% and it's not volatile at all , 52 weeks high/low in range 13.76-14.81...

As I need to do new RRSP contribution will consider again PFF and PGX


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## gibor365 (Apr 1, 2011)

btw, what is PGX holdings by country? I couldn't find it....


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## leeder (Jan 28, 2012)

@ dime: Are you looking to buy and hold a stock and collect dividend regardless of whether a stock goes up or down? If so, good low beta dividend aristocrats might be what you are looking for. These include stocks like FTS, ENB, CU, BCE, and T.

Or you can consider a diversified index fund with an increase allocation to your fixed income, to the point that you feel you can sleep like a baby even if the market were to crash.


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## john3322 (Nov 24, 2014)

*Investment Area*

There are several types and levels of risk that a given investment can have:
Preferred Stock
Utility Stock
Fixed Annuities
Brokered CDs
Bond and Income Mutual Funds and Unit Investment Trusts (UITs)


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## james4beach (Nov 15, 2012)

leeder said:


> Or you can consider a diversified index fund with an increase allocation to your fixed income, to the point that you feel you can sleep like a baby even if the market were to crash.


I still think this is the way to go. If you're experiencing stress, reduce stock exposure and increase fixed income (including GICs and HISA).

Simplest and best (domestic) investment model is XIC + XSB. Just vary the weights to taste.


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## fatcat (Nov 11, 2009)

i agree with the idea of diversification and would maybe mirror XTR on my own by buying a mix of say: XUT, maybe some FCR or XRE, a couple bank stocks, some ZCM and a little high yield like PHN's high yield (if it is open)

do your own and you can control the mix, spread the risk and lower the fees


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## Sasquatch (Jan 28, 2012)

I'm thinking about investing in the UTM ETF........ next to no risk but also no real return............ oh well

My grandparents invested in that particular ETF during the great depression after WW1 in Germany.


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## Ag Driver (Dec 13, 2012)

My favourite low risk vehicles are HISAs (1.25%) and GIC Ladders (2.375% averaged). Not much on returns, but they are both guaranteed and easily accessible with no possible depreciation on your capital. About as low risk as you can get.


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## james4beach (Nov 15, 2012)

I agree with Ag, those are my preferences too. Don't forget the CDIC insurance.


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## Eder (Feb 16, 2011)

Ag Driver said:


> with no possible depreciation on your capital.


I think your capital is depreciating...with no risk of capital gain.


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## Ag Driver (Dec 13, 2012)

Eder said:


> I think your capital is depreciating...with no risk of capital gain.


I have about 90% equities and 10% fixed. Some of my equities, if I were to cash them in now I would be realizing a loss. Down the road, if/when they go back in the green -- yes, I will have gained. BUT all of my HISA/GIC's are in the green.....ALL THE TIME. Cash is King due to the simple fact that equities are solely based on perceived value which fluctuates at any given time. Can the cash be used elsewhere to _potentially _make better money? Sure. However, I will never be 100% equities as that is NOT my risk tolerance. HISA/GIC's are low risk ... this is what the thread is inquiring about. Those are my favourites, and not yours. 

Try to buy your groceries with a stock ticker next time you go shopping.


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## Eclectic12 (Oct 20, 2010)

Eder said:


> I think your capital is depreciating...with no risk of capital gain.


 ... and a lot less of a risk of a capital loss either.


Cheers


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## supperfly17 (Apr 18, 2012)

Would you consider pipelines as low risk investments?

Curious as to why lets say, TRP and PPL are having their stock price drop when noone is cutting output? Just generalized fear?


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## gibor365 (Apr 1, 2011)

Ag Driver said:


> I have about 90% equities and 10% fixed. Some of my equities, if I were to cash them in now I would be realizing a loss. Down the road, if/when they go back in the green -- yes, I will have gained. BUT all of my HISA/GIC's are in the green.....ALL THE TIME. Cash is King due to the simple fact that equities are solely based on perceived value which fluctuates at any given time. Can the cash be used elsewhere to _potentially _make better money? Sure. However, I will never be 100% equities as that is NOT my risk tolerance. HISA/GIC's are low risk ... this is what the thread is inquiring about. Those are my favourites, and not yours.
> 
> Try to buy your groceries with a stock ticker next time you go shopping.


I agree and I have at least 40% of all money in HISA/GIC



> My favourite low risk vehicles are HISAs (1.25%) and GIC Ladders (2.375% averaged)


 but why not HISA not in Tangerine (2.5% now) and GIC ladder not in PT (2.45% on 18 months)?


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## Ag Driver (Dec 13, 2012)

gibor said:


> I agree and I have at least 40% of all money in HISA/GIC
> 
> but why not HISA not in Tangerine (2.5% now) and GIC ladder not in PT (2.45% on 18 months)?


You make some great recommendations. I should note that my credit union has profit sharing which pays in the tune of 1-2% for credits and debts held with the institution. In reality it would be 2.25% and 3.35% (average) respectively on the low end. I'm not terribly anal about chasing the extra fraction of a percent here and there... BUT, it is a great idea! I think as I move more towards fixed income down the road, I will certainly be chasing rates at a number of institutions. 

My GIC ladder is very young. I have been catching my credit unions "specials" every January for the past 2 years so far, and will continue to do so up until I have a stable 5 year ladder.


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## Eder (Feb 16, 2011)

I guess my point was that if your ladder averages ~2% yield you are locking in losses due to inflation regardless if you own more beans after 5 years and to me that is a high risk strategy. Or are we all convinced we are in a deflationary spin?

Although GIC's and bonds belong in every portfolio it is equities that will turbo your returns. I wanted to link one of Buffets letter to shareholders explaining fixed income risk but can't seem to find it.


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## gibor365 (Apr 1, 2011)

> guess my point was that if your ladder averages ~2% yield you are locking in losses due to inflation


 my yield averages 2.5% that in line with the inflation...


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## james4beach (Nov 15, 2012)

By sticking to ladder purchasing methodology, your GIC would have those juicy 3.0% yields available up until a few months ago ... but people seem to want to pick and choose their ladders in the perpetual hope "interest rates will rise".

Just routinely buy the 5 years, it's a good methodology


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## Eder (Feb 16, 2011)

gibor said:


> my yield averages 2.5% that in line with the inflation...


If I include my corporate bonds my fixed yields well over 3%, but fully taxable other than those in my RRSP. In my opinion we need to try for 7% before inflation to make head way. GIC's are a large reason why our banks are so profitable.

2016 is my last GIC yielding over 3.2% but I stick them back to 5 year terms as they mature....most recent was ICICI 5 year GIC at 2.49% yeech.


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## 1980z28 (Mar 4, 2010)

Td

Fts
Su
Cos


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## Moneytoo (Mar 26, 2014)

Moneytoo said:


> ...want to replace them with PFF (mostly US perpetual preferreds, yields more than 6%) in RRSP


PFF was just recommended on tonight's BNN Market Call:

*iShares U.S. Preferred Share Index (PFF*0.15%)*

This name is for investors looking for fixed income within an RRSP. Current yield is 5.5 percent offers large spread over 5 year government bonds and is not subject to withholding tax in an RRSP. We expect that the Canadian dollar will gradually decline over the next year or two so this security offers possible foreign exchange gains. Very low correlation with S&P 500 so a good choice in a balanced portfolio.

___________________________

After the surprise rates cut definitely no GICs or bonds for me this year (and thinking to maybe sell CBO in my husband's RRSP - today it jumped back to the price we paid for it last April, was steadily declining every month since then, such a waste of space...)

_Most investors understand that bond prices fall when yields rise. What’s less well known is that bond ETF prices will decline steadily even if interest rates don’t change. That’s because virtually all the bonds in a broad-based ETF today were purchased at a premium—in other words, for more than face value. As these bonds mature or get sold, the fund will incur a steady trickle of small capital losses. But that doesn’t necessarily mean your investment will lose money overall, because the interest payments from the bonds will offset at least some those losses.
_

Yadayadayada


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## thepitchedlink (Feb 17, 2014)

1980z28 said:


> Td
> 
> Fts
> Su
> Cos


So your saying that you truly feel that these are very low risk and a safe bet at todays prices?.....


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## Killer Z (Oct 25, 2013)

1980z28 said:


> Td
> 
> Fts
> Su
> Cos


Your response may be based on a comparison to the balance of your portfolio, however I do not believe many would consider COS or even SU "lower risk".


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## Moneytoo (Mar 26, 2014)

Killer Z said:


> Your response may be based on a comparison to the balance of your portfolio, however I do not believe many would consider COS or even SU "lower risk".


Some would: "As Graham shows so brilliantly in Chapter 8, this is exactly backwards. The intelligent investor realizes that stocks become more risky, not less, as their prices rise—and less risky, not more, as their prices fall."


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## lonewolf (Jun 12, 2012)

favorite low risk investment is to sell anything that will catch a bid. Government bonds are the worst investment in case of bankruptcy nothing to sell to pay bond holders.


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