# Your Canadian Dividend Growers basket



## john.cray (Dec 7, 2016)

Hello investors,

I have started entertaining the idea of converting my XIC ETF into a basket of individual Canadian securities, basically constructing a dividend growers portfolio for the Canadian exposure of my portfolio. I was hoping to see what other fellow investors executing this strategy hold in their portfolios and what weights you try to maintain.

Cheers,
JC


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## AltaRed (Jun 8, 2009)

Take a look at the Dividend Aristocrats holdings if you are looking for dividend growers. https://www.dividendearner.com/canadian-dividend-aristocrats/


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## like_to_retire (Oct 9, 2016)

john.cray said:


> Hello investors,
> 
> I have started entertaining the idea of converting my XIC ETF into a basket of individual Canadian securities, basically constructing a dividend growers portfolio for the Canadian exposure of my portfolio. I was hoping to see what other fellow investors executing this strategy hold in their portfolios and what weights you try to maintain.


Personally, my total equity allocation is assigned exclusively to a basket of individual Canadian securities. I have been following this strategy since Nov 2011. It consists of equal weights in eight of Canada's eleven sectors. That results in 12.5% assigned to each of Financial Bank, Financial Non-Bank, Energy, Telecom, Utilities, Consumer Discretionary, Consumer Staples, Industrial. There is no representation of Materials, Information Tech, or Health Care due to their volatility. Most of the stocks are members of XIU, but there are a few XIC members. Their selection is a bit detailed and convoluted, but that's not too important here.

Since 2011, my cumulative return to date, including dividends, is 85.9% (that's a CAGR geometric Average Annual Total Return of 10.9%). 
The benchmark that I compare against is XIU. It's cumulative return (including re-invested dividends) over this same period is 48.6% (that's a CAGR geometric Average Annual Total Return of 6.8%). 

So my total return is 37.3 percentage points better than the index. That's a lot. It ain't that difficult to beat the index.

I use the TMX S&P/TSX60 SPIV (XIU Stock Price Index Value) and TRIV (XIU Total Return Index Value) as the benchmark. The TRIV as shown in the chart below for XIU return is a measure of the index with dividends reinvested on their ex-dividend day. My return is a simple stock appreciation per year plus dividends at year end, so I'm giving the XIU a bit of an advantage in the comparison. 

Chart Note: In 2015 I modified my year end date from Nov to December to make my math a bit less cumbersome. 

Anyway, john.cray, my suggestion is to build a portfolio of stocks that represent equal sectorization. I don't like large amounts of volatility, so I excluded a few sectors, but you may not mind that.


View attachment 15689


ltr


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## john.cray (Dec 7, 2016)

Thanks for the answers AltaRed and LTR. I agree with the sector balancing. I like equal weights too. If not considered a secret, would you be willing to share individual holdings in each sector? Do you also weigh them equally within?


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## like_to_retire (Oct 9, 2016)

john.cray said:


> Thanks for the answers AltaRed and LTR. I agree with the sector balancing. I like equal weights too. If not considered a secret, would you be willing to share individual holdings in each sector? Do you also weigh them equally within?


No one wants to reveal all their stocks. It's a bit meaningless anyway. I'm sure you can look at the index's and parse out the blue chip stocks that would be best for equal sectorization. Utilities - I'm sure you would pick FTS, EMA, CU or something similar. The Banks - obvious. The thing is, the index has a lot of dogs, that I, nor you, would likely own. That's the problem with buying the index. You get the dogs and it drags down the return.

Yeah, I do try and keep an equal balance within each sector as much as possible. When I have a bunch of cash to invest, I try and re-equal my sectorization, and within the sector itself, the money goes to the lowest security within.

ltr


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## john.cray (Dec 7, 2016)

like_to_retire said:


> No one wants to reveal all their stocks. It's a bit meaningless anyway. I'm sure you can look at the index's and parse out the blue chip stocks that would be best for equal sectorization. Utilities - I'm sure you would pick FTS, EMA, CU or something similar. The Banks - obvious. The thing is, the index has a lot of dogs, that I, nor you, would likely own. That's the problem with buying the index. You get the dogs and it drags down the return.
> 
> Yeah, I do try and keep an equal balance within each sector as much as possible. When I have a bunch of cash to invest, I try and re-equal my sectorization, and within the sector itself, the money goes to the lowest security within.
> 
> ltr


Thank you for that detail. I apologize if I am asking for too much information regarding individual holdings in this thread. I didn't realize it earlier. Totally fine not to reveal. I have already started compiling my own list but wanted to know what others are doing.

A couple of questions that I am also curious about:
1. How many dividend stocks do you hold in total or you think are appropriate enough to have in order to achieve diversification with the dividend growth strategy?
2. Do you DRIP or do you accumulate cash from all and then redistribute to the capital losers so that you rebalance? I see most people prefer the DRIP strategy but I am drawn to do focused rebalancing to the biggest losers with the total distribution. Does that make sense?

Cheers folks,
JC


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## AltaRed (Jun 8, 2009)

My rule of thumb is for no single asset to exceed 5% of my portfolio. Give or take, a range of 3-6% is pretty good for individual holdings. Being too precise simply increases number and cost of transactions. I am a little anal with holding board lots only as well. I like numbers rounded off in multiples of 100. 

I have never dripped. I want to make my own independent investment decisions with investment income (including dividends) and new cash. That's a personal decision.


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## Iczimek (Jul 3, 2017)

When it comes to Canada, I love banks. Great DY, stable growth, astonishing payment history. And first choice is TD.


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## like_to_retire (Oct 9, 2016)

john.cray said:


> A couple of questions that I am also curious about:
> 1. How many dividend stocks do you hold in total or you think are appropriate enough to have in order to achieve diversification with the dividend growth strategy?
> 2. Do you DRIP or do you accumulate cash from all and then redistribute to the capital losers so that you rebalance? I see most people prefer the DRIP strategy but I am drawn to do focused rebalancing to the biggest losers with the total distribution. Does that make sense?


1. I hold 24 stocks. Eight sectors with three stocks in each. In some of the sectors for Canada you'd be hard pressed to find more than three. Twenty-four is enough to keep track of for me.

2. I never DRIP. All my stocks are in my non-registered account. Drips are a nuisance in a non-registered account with respect to cost base. Anyway, as Alta says, I want to decide what to do with the cash my stocks throw off. 

Also as Alta says, I never buy anything but board lots. I try not to get too exact about percentages. It only results in transactions that cost money.

I think you're on the right track. To me, it seems obvious that the two biggest problems with the Canadian index is that the sectorization is very lopsided toward finance and energy, and the index is full of stocks that most people, if given the option, wouldn't own. Those two things alone make it an easy thing to beat. The people that spend their time trying to convince you otherwise are likely heavy index owners and don't want to admit these weaknesses.

ltr


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## john.cray (Dec 7, 2016)

like_to_retire said:


> 1. I hold 24 stocks. Eight sectors with three stocks in each. In some of the sectors for Canada you'd be hard pressed to find more than three. Twenty-four is enough to keep track of for me.
> 
> 2. I never DRIP. All my stocks are in my non-registered account. Drips are a nuisance in a non-registered account with respect to cost base. Anyway, as Alta says, I want to decide what to do with the cash my stocks throw off.
> 
> ...


Thanks guys. I really thought I would find more opposition against dividend growers strategy here 

Now I have to spend some time building the right mix of stocks per sectors first and then get rid of XIC which has now lost value in my RRSP. I guess I could be misbalanced for a while.


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## OnlyMyOpinion (Sep 1, 2013)

We have 15 Cdn common in our un-reg portfolio with another 3 reit and 5 pref to provide a bit higher div yield. The dividend income plus early CPP cover our expenses, but we actually spend maturing strips and let the dividends drip. I don't find tracking BV particularly onerous. Also, TDDI's BV is in fact accurate as long as the full history of the shares (including drips) has occurred within that account. I'm a procrastinator so the drip has definately been to our beneft over the last 10-15 years of accumulation (the other way to interpret this is that I still don't act on my financial plan the way I'm supposed to).

The portfolio was not built and methodically designed to cover all sectors like LTR's is (to his credit). Nor are holdings equally weighted - they range from under 1% to just over 8% of bv. The 15 common provide a 4.0% yield to mkt. It looks like dividend growth has been 6.6% ytd. It also looks like the S&P/TSX is down about 1.7% ytd while I make our portfolio to be up about 0.5%.
The usual suspects: TD, RY, CM, BMO, MFC, AQN, ENB, FTS, TRP, BCE, T, CTC.A, L, SIA, SU. Not all in equal weightings as noted.

Ironically, I've been considering going the other way, adding an income-biased etf porfolio with a large sum that we currently have sitting in cash. The idea being to simplify the portfolio for the wife in the event of my demise. Haven't had time to fully decide yet though. The other consideration is our intention to wind up this account (by gifting) over the next 10 yrs.


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## SW20 MR2 (Dec 18, 2010)

Do you folks have a limit to the $ invested in an individual stock? That is, let's say you have a basket of 10 stocks at 10% each. If you had $20k to invest vs $1MM to invest, would you still invest 10% in each stock for both scenarios? Or would you increase the number of stocks for the $1MM portfolio?


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## like_to_retire (Oct 9, 2016)

SW20 MR2 said:


> Do you folks have a limit to the $ invested in an individual stock? That is, let's say you have a basket of 10 stocks at 10% each. If you had $20k to invest vs $1MM to invest, would you still invest 10% in each stock for both scenarios? Or would you increase the number of stocks for the $1MM portfolio?


It's a good question. Myself, I don't see any difference in the size of the portfolio with regard to the percentages in each stock (others may disagree). The loss in percentage will be identical regardless if the size of the portfolio is $20K or $1MM. There is a psychological difference when we see a loss of $2K compared to $100K for example, but that's something for each individual to come to grips with.

I don't generally agree that 10 stocks is enough when dealing with individual securities, especially if you're attempting to diversify among sectors. You would be betting an entire sector on one stock. I tend toward at least 20 being a safer number. My system assigns 3 stocks to each sector. It feels right to me.

ltr


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## canew90 (Jul 13, 2016)

We are retired and fully invested with 100% DG stocks. We have a total of 18 stocks spread over our two rrif's, two tfsa, a non-reg's acct and our drip accts with Computershare. Our rule when we were in the accumulation phase was:
1. establish a list of stocks to buy and ignore all the rest
2. we followed the guidelines of: http://www.dividendgrowth.ca/
3. avoided cyclical stocks
4. we dropped all energy stocks
5. we tried to buy when a stock met our price expectations
6. we reinvested all dividends and still do for the ones we don't draw down
7. we did not re-balance or try to worry about sector allocation
8. we finally learned not to sell to Take Profits
9. our measure of performance was Income growth

That's it and we are very happy with the results.


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## Koogie (Dec 15, 2014)

SW20 MR2 said:


> Do you folks have a limit to the $ invested in an individual stock? That is, let's say you have a basket of 10 stocks at 10% each. If you had $20k to invest vs $1MM to invest, would you still invest 10% in each stock for both scenarios? Or would you increase the number of stocks for the $1MM portfolio?


I personally don't like to let a single position grow to over 5% of the total portfolio or $100K for an individual stock. I've only ever had one or two grow beyond that (I index a lot as well and have a lot of fixed income) However, I find it very painful to trim a winner when it grows that big. I usually procrastinate and let the market do it for me, like an idiot.


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## Pluto (Sep 12, 2013)

john.cray said:


> Thanks guys. I really thought I would find more opposition against dividend growers strategy here
> 
> Now I have to spend some time building the right mix of stocks per sectors first and then get rid of XIC which has now lost value in my RRSP. I guess I could be misbalanced for a while.


Resistance to individual dividend stock picking has gone down on this forum. There was a time when a thread like this would be instantly hijacked by indexers. I think you are on a good track. 
I don't think there is such a thing as the right mix of stocks per sector. for me a company has to meet minimum quality standards such as debt to equity, and return on equity, and preferably tons of assets as well as a history of growing dividends. I have no interest in the severely cyclical stocks (one favourate example is TECK) eventhough all stocks are to a degree, cyclical. I don't really care about equalizing sectors - what if there is a sector that has no quality stocks? I skip it. doesn't make sense to buy a substandard stock just to make the portfolio symetrical. 

On average service companies will outperform capital intensive companies so my weighting reflects that. 
I prefer to keep the winners rather than sell some of them to rebalance. I think it is better to try to keep balance by adding to some slower growers, and not trim the winners. 

there are lots of folks on this forum who claim to have beat the index and I believe them. Banks, piplines, and telecom seem to be the core of this strategy. the main thing is to weed out the losing stocks and concentrate on the proven winners and survivors.


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## kcowan (Jul 1, 2010)

I use FP and their dividend screener:
FP Dividend Growth screen
I like it because it also show Total Return for the last 5 years. I use this to select individual stocks for my Canadian equity holdings. I put it in a spreadsheet to manipulate it.

For the US, I use the Dividend Aristocrat spreadsheet which is 10 years.
Spreadsheet for July
In spite of my support of climate change initiatives, I still hold XOM because of the 15.5% total return.


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## milhouse (Nov 16, 2016)

My current composition is:
2 telecoms
3 financials (2 banks and 1 lifeco)
1 energy
2 pipelines
1 utility
1 restaurant 
and some loose ends.

I'd like to add another financial and another utility. I've also been debating about adding consumer discretionary, consumer staples, and a REIT.


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## atrp2biz (Sep 22, 2010)

We don't pay attention to individual yields but this thread made me want to look at our portfolio yield. We try to keep in in the low end and it currently stands at 2.3%.


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## john.cray (Dec 7, 2016)

kcowan said:


> I use FP and their dividend screener:
> FP Dividend Growth screen
> I like it because it also show Total Return for the last 5 years. I use this to select individual stocks for my Canadian equity holdings. I put it in a spreadsheet to manipulate it.
> 
> ...


That's a great resource and a starting point to comb through! Thank you very much. I am not sure if I am ready to apply the same approach to any other market but Canada yet. For now I'll stick to indexing for my international exposure: VTI, VOO, VIU. One thing worth mentioning is that I already maintain a basket of 6 REITs in TFSA (about 10% of total portfolio) so hopefully I'll be able to use some of that experience.

Two more things are on the back on my mind and I am curious to hear your preference and approach:
* The concept of Yield on Cost (YoC). This is a core principle behind the strategy and I absolutely love it. I was hoping some of you guys can share what your average effective YoC is and over what period of time you've archived it. Especially interested in people in retirement.
* Once you've compiled your basket of potential picks, do you try to buy them in a particular moment when they are slightly undervalued? I know this is market timing but if you're dealing with a basket of 20 or so individual companies it might be worth trying to lock in a low price/high yield moment. Or is it futile?

Forgive me if those are naïve questions. Hopefully this thread will be useful for others.

Regards,
JC


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## like_to_retire (Oct 9, 2016)

john.cray said:


> I am not sure if I am ready to apply the same approach to any other market but Canada yet. For now I'll stick to indexing for my international exposure


Most would agree with this approach I think. We're familiar with Canada and its limited number of blue chip companies. We're also aware of the lopsided nature of its indexes. It's a perfect opportunity, combined with the dividend tax advantages, and no forex situations, to pick a group of stocks that will easily beat the index. It's an absolute canard in Canada that you can't better the index. Myself, from experience, I find it too large a hurdle to overcome, to even consider anything but Canadian stocks in my portfolio, given dividend tax advantages and forex concerns of foreign stocks or ETF's. I hold only Canadian stocks. Many would disagree.




john.cray said:


> I already maintain a basket of 6 REITs in TFSA (about 10% of total portfolio)


So you're looking for income?




john.cray said:


> The concept of Yield on Cost (YoC). This is a core principle behind the strategy and I absolutely love it. I was hoping some of you guys can share what your average effective YoC is and over what period of time you've archived it. Especially interested in people in retirement.


Most, if not all, will admonish you for considering YoC as anything but silly. Buy a stock, and 20 years later you can boast of a 1200% YoC. So what? Sensible people would only look at YoM (Yield on Market). Yet, I understand its appeal. Believers would say that it's a decent comparison of yield against a bond or a GIC whose payout never changes, and so if dividend increases on a stock (purchased at the same time as a GIC) are growing, then yield on cost is worth noting. In reality, YoC is a novelty. Yes, in my own spreadsheets, I admit to a column for YoC. Some of the YoC's are ridiculous (it gives me a quick sense of capital gains taxes), and some are about the same as the YoM (it says this stock has little appreciation and is likely a high payout stock). Depending on when you purchased that stock, it can also give an indication of dividend growth. Either way, I would forget about YoC.




john.cray said:


> Once you've compiled your basket of potential picks, do you try to buy them in a particular moment when they are slightly undervalued? I know this is market timing but if you're dealing with a basket of 20 or so individual companies it might be worth trying to lock in a low price/high yield moment. Or is it futile?


It's futile. 

ltr


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## kcowan (Jul 1, 2010)

I think total return is pretty close to YoC. It is annualized though so you would have to compound it by 5 or 10.


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## AltaRed (Jun 8, 2009)

Yield on cost is completely bogus. As LTR suggests, you should have 3-4 digit yield on a dividend grower if you held it for 20 years. That tells you nothing other than the stock has grown its dividend over time. As Keith suggests, it could be a pseudo-proxy for Total Return, but then why not just use published Total Return numbers to begin with? CAGR for the last 5 or 10 years tells you something.

The only yield number that matters is the current yield on the market value on the asset today. It is what your capital is generating for you in investment income today. I have never calculated Yield on Cost of any investment I've had, nor will I ever do so.


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## canew90 (Jul 13, 2016)

AltaRed said:


> Yield on cost is completely bogus. As LTR suggests, you should have 3-4 digit yield on a dividend grower if you held it for 20 years. That tells you nothing other than the stock has grown its dividend over time. As Keith suggests, it could be a pseudo-proxy for Total Return, but then why not just use published Total Return numbers to begin with? CAGR for the last 5 or 10 years tells you something.
> 
> The only yield number that matters is the current yield on the market value on the asset today. It is what your capital is generating for you in investment income today. I have never calculated Yield on Cost of any investment I've had, nor will I ever do so.


It's an opinion and does it matter what makes a person feel good about their investments? I've spouted yield, but I've also said that the number that matters to me is the Actual Dollars I receive each month, quarter, year and are those dollars increasing. I don't care if the value of my holdings are up or down or what the current yield is or what the total return was for the year, because if my income is growing I know the value will follow at some point.
IMO if a stock does not pay a dividend, your capital is only generating a Paper income unless you sell at todays price. Tomorrow if the market crashes where's all that gain?


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## john.cray (Dec 7, 2016)

AltaRed said:


> Yield on cost is completely bogus. As LTR suggests, you should have 3-4 digit yield on a dividend grower if you held it for 20 years. That tells you nothing other than the stock has grown its dividend over time. As Keith suggests, it could be a pseudo-proxy for Total Return, but then why not just use published Total Return numbers to begin with? CAGR for the last 5 or 10 years tells you something.


I might have stepped on a landmine here with this YoC subject, eh? Anyway, I am still trying to do my homework as of why it might be a bogus metric so I would appreciate a little bit of extra clarification, if you're willing to spend the time.



> The only yield number that matters is the current yield on the market value on the asset today. It is what your capital is generating for you in investment income today. I have never calculated Yield on Cost of any investment I've had, nor will I ever do so.


My understanding is that the current yield would be the percentage you'd get if you bought the security at today's price, right? What if you bought it 10 years ago at half today's price?

For me personally (for now) YoC makes sense and I thought this is why people are after the *growers* in the dividend growers strategy and not just about any dividend payer. With regards to the Total Return metric -- I agree it is totally important since it will incorporate the capital appreciation in the equation, but in the case of a market crash, valuations will be irrational, no? Therefore the Total Return will make it look like you've made a bad investment just because "the next guy" is willing to pay way less now, not because the inherent value has diminished. In that sense I feel I personally would be more likely to keep my investments by focusing on the growing yield (and YoC) and consider capital appreciation as a bonus. A very important one indeed!

Cheers,
JC


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## john.cray (Dec 7, 2016)

OK, now that I read some more I think the bottom line on why it is not a totally useful metric comes down to "YOC masks the opportunity cost of the unrealized gain", as they said it elsewhere. In other words you could simply sell the original investment, realize the gain and buy shares of another company having higher current yield. If the current yield of the new company is higher than the current yield of the old company then you'd have higher income because you'd have used the otherwise unrealized gains to buy a larger total amount of the new company.


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## gibor365 (Apr 1, 2011)

john.cray said:


> OK, now that I read some more I think the bottom line on why it is not a totally useful metric comes down to "YOC masks the opportunity cost of the unrealized gain", as they said it elsewhere. In other words you could simply sell the original investment, realize the gain and buy shares of another company having higher current yield. If the current yield of the new company is higher than the current yield of the old company then you'd have higher income because you'd have used the otherwise unrealized gains to buy a larger total amount of the new company.


Everything is nice in theory , 4+ years ago I bought LMT (when CAD$ was = USD$), yield was than about 4.5%, now my YoC is 8.3%... and current market yield is 2.55%... However, I never sold and don;t plan to sell it, I just don't see more solid stock with higher rate that increase yield every year by double digits...
Same with my another dividend champion MO where my YoC is 9.3%


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## like_to_retire (Oct 9, 2016)

john.cray said:


> .... Anyway, I am still trying to do my homework as of why it might be a bogus metric so I would appreciate a little bit of extra clarification, if you're willing to spend the time.
> 
> For me personally (for now) YoC makes sense and I thought this is why people are after the *growers* in the dividend growers strategy and not just about any dividend payer.


The problem with YoC is that is has no reference, not even an implied one. 

If I quote YoM (Yield on Market), then it implies a reference to today's market. Now we're all on the same page. YoM is a number that I am then able to compare to others as I know they all have the same reference point. I can easily know the significance between 3% YoM and 4% YoM.

There is no reference with YoC (Yield on Cost). You can tell me you hold a stock with a 15% yield, and if it's YoC, then you've told me nothing that I can use to evaluate that statement. Did you buy the stock yesterday and it's a high yielder and you're getting 15%, or did you buy it ten years ago and the dividend has risen enough to result in a calculation of 15% on your original investment? How would I compare this stock against another stock? You would have to include a bunch of other reference data before I could understand what your yield claim meant.

So for your own spreadsheets it's fine to look at your YoC, because you have all the available data to make an evaluation of how good or bad it is, but telling anyone else your YoC, is a bit bogus. You'll usually receive the push-back you just received. It has the slight odour of self congratulating associated with it because no one can dispute it (although I know that's not the case here).

ltr


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## canew90 (Jul 13, 2016)

In the Subscribers section of Connolly. he listed 23 stocks comparing their yield in 2008 to 2017. 5 were slightly lower, 11 were slightly higher and 7 were almost the same. All grew their dividend over the period again some faster others slightly slower (average 8.6%). But the point one gains from reviewing the data is that AS DIVIDENDS GROW, SO DO PRICES. 
The data covers the Financial Crisis and its recovery, which affected some of the stocks, but as Tom says Yield Sends Signals. If ones' YOC is growing than so too is the value of his holdings.
Opportunity cost is nothing more than a guess. If you do sell a good holding to buy another with a higher yield, it may or may not provide a better return over time than keeping ones previous holding.


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## kcowan (Jul 1, 2010)

YoC is what most people who own real estate use. I believe they are deluding themselves. And for all the same reasons. YoM is the only way to evaluate a holding. YoC is just a way to make yourself feel better. If you like it, then fine. Just don't look for support in a public forum.


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## Koogie (Dec 15, 2014)

AltaRed said:


> The only yield number that matters is the current yield on the market value on the asset today. It is what your capital is generating for you in investment income today. I have never calculated Yield on Cost of any investment I've had, nor will I ever do so.


This may be revealing of my overly negative nature but I personally never equate the current market value of the equities I hold with my "capital" 
To me, my capital is the sum total of the funds I invested to buy the portfolio. The market value is only a paper figure that is irrelevant unless I sell and I am unlikely to ever sell the entire portfolio at once and realize that full amount as "capital".

Separate of course from the topic of YoC, which I do have a column for on my spreadsheet but realize it is useless as anything other than personal trivia.


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## AltaRed (Jun 8, 2009)

Koogie said:


> This may be revealing of my overly negative nature but I personally never equate the current market value of the equities I hold with my "capital"
> To me, my capital is the sum total of the funds I invested to buy the portfolio. The market value is only a paper figure that is irrelevant unless I sell and I am unlikely to ever sell the entire portfolio at once and realize that full amount as "capital".


You are then essentially saying your Net Worth (and Portfolio Value) has no real value and the only thing you should look at is your Cost Basis. Are you going to calculate your withdrawal percentages on Cost Basis? And if so, why? How to you square that with your ability to sell an asset (Asset A) at current Market Value then and re-invest it in another asset (Asset B) at its Market Value (which then becomes the Cost Basis for the new investment Asset B? Where did all that free money come from (between your Cost Basis of the original investment Asset A which was sold at a higher price to get a new Cost Basis for your new investment Asset B)? How do you make an assessment of whether the capital currently tied up in Asset A is providing you with an appropriate return relative to the opportunity to re-deploy that money into a new Asset B?

Your capital is actually the market value of your asests today. What your original capital you deployed into Asset A 2 years ago, or 20 years ago, is nothing more than a historical record. It has no context.


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## Koogie (Dec 15, 2014)

AltaRed said:


> You are then essentially saying your Net Worth (and Portfolio Value) has no real value and the only thing you should look at is your Cost Basis.


 I am saying total portfolio value is a moving target and not one I use for planning purposes, no. If I was to liquidate the entire portfolio, then yes, it would be an amount that could be quantified and relied upon and used for planning purposes. 



AltaRed said:


> Are you going to calculate your withdrawal percentages on Cost Basis? And if so, why?


 Yes. Because of a pessimistic nature...


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## Pluto (Sep 12, 2013)

john.cray said:


> * Once you've compiled your basket of potential picks, do you try to buy them in a particular moment when they are slightly undervalued? I know this is market timing but if you're dealing with a basket of 20 or so individual companies it might be worth trying to lock in a low price/high yield moment. Or is it futile?
> Regards,
> JC


I don't think that is market timing. Take IPL for instance, which is on the buy list of some who are into piplelines. Back in January it was near 30, now near 25. If it was a good buy at 30, its an even better buy at 25. this isn't market timing. It is just noticing its a better buy at 25, compared to 30, and buying more agressively when its a better buy is common sense. 

Suppose you go shopping and notice something you usually buy is on sale by some% off the regular price. It is not timing, nor futile, to stock up when it is on sale.


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## rl1983 (Jun 17, 2015)

LTR,

do you have any REITs in your stock picks? If so, where do you see these going in the next few years?


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## john.cray (Dec 7, 2016)

Pluto said:


> I don't think that is market timing. Take IPL for instance, which is on the buy list of some who are into piplelines. Back in January it was near 30, now near 25. If it was a good buy at 30, its an even better buy at 25. this isn't market timing. It is just noticing its a better buy at 25, compared to 30, and buying more agressively when its a better buy is common sense.
> 
> Suppose you go shopping and notice something you usually buy is on sale by some% off the regular price. It is not timing, nor futile, to stock up when it is on sale.


That's generally how I feel Pluto. Although I am new and don't trust my gut. Also as you can see others don't necessarily agree with this approach.

Using this opportunity, now that you mention IPL, my understanding is that energy stocks have been suppressed for a few years now. I have just started digging deeper, but IPL and ALA seem to be two examples of this class having current yields of 6.50% and 7.20% respectively. If you were to start filling in your basket with stocks do you agree that it makes sense to start with those that are currently unloved?

Regards,
JC


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## canew90 (Jul 13, 2016)

like_to_retire said:


> The problem with YoC is that is has no reference, not even an implied one.
> 
> If I quote YoM (Yield on Market), then it implies a reference to today's market. Now we're all on the same page. YoM is a number that I am then able to compare to others as I know they all have the same reference point. I can easily know the significance between 3% YoM and 4% YoM.
> 
> ...


As you say YOC is not something others can relate or compare to, and that's not what its used for. It tells me that based on my total investment I'm generating a certain amount of return. That's real return, cash I actually receive or can use for whatever purpose. It may not be a measure of success or meet or surpass what others receive, but the dollars the percentage represent are meaningful. If I want to project a withdrawal in the future, the dollars my investments are generating eliminates the majority of the guesswork. Trying to use Market Value is nothing but guessing. How did MV projections do for those who needed to withdraw funds during 2008/2009? My income continued to rise during the period, even though the MV of my portfolio dropped like everyone else.


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## like_to_retire (Oct 9, 2016)

rl1983 said:


> LTR,
> 
> do you have any REITs in your stock picks? If so, where do you see these going in the next few years?


No REITS, no Foreign. 

My allocation is fairly simple.

_________________________________

3% CASH: HISA.

50% FIXED INCOME: 5 YEAR Ladders.

7% HYBRID: Preferred shares. (use to consider this fixed income, but resets changed that world).

40% EQUITY: 100% Canadian individual stocks. 

__________________________________

ltr


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## like_to_retire (Oct 9, 2016)

AltaRed said:


> Are you going to calculate your withdrawal percentages on Cost Basis? And if so, why?





Koogie said:


> Yes. Because of a pessimistic nature...


Very unusual. If you can't accept the value of your assets at market rate, then why do you assign any value to your book at all - it's value is whatever you can sell it for. Maybe that's lower than your book.

ltr


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## Pluto (Sep 12, 2013)

john.cray said:


> That's generally how I feel Pluto. Although I am new and don't trust my gut. Also as you can see others don't necessarily agree with this approach.
> 
> Using this opportunity, now that you mention IPL, my understanding is that energy stocks have been suppressed for a few years now. I have just started digging deeper, but IPL and ALA seem to be two examples of this class having current yields of 6.50% and 7.20% respectively. If you were to start filling in your basket with stocks do you agree that it makes sense to start with those that are currently unloved?
> 
> ...


(I don't know much about ALA so can't comment on it.)
Some people class those piplines as utilities, not energy. Usually piplines don't own the commodity, they store and transport it. Its similiar to a toll on a highway - you own the highway and charge for using it, but you don't own what goes down the highway. So the business isn't affected too much by commodity prices, but is influenced by the volume.


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## john.cray (Dec 7, 2016)

Hey guys,

A quick follow-up question. My current Canadian equities exposure is through XIC, which I placed in my RRSP account. Now that I am considering selling that and switching strategies to dividend growers and individual companies I started reconsidering if the RRSP location choice was bad. Now, more than before, a bigger part of the return will be in eligible dividends. Do you think it is better to buy the individual companies in non-registered/taxable accounts and leaving the cash sit in the RRSP after selling XIC for future things? Today I don't really have much better use for the RRSP room. I don't want to increase my bonds exposure and I will keep US equities in a taxable account (since I plan to use US dollars and have no further RRSP room for them).

Thanks for your input.

Regards,
JC


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## like_to_retire (Oct 9, 2016)

john.cray said:


> ....My current Canadian equities exposure is through XIC, which I placed in my RRSP account. Now that I am considering selling that and switching strategies to dividend growers and individual companies I started reconsidering if the RRSP location choice was bad. Now, more than before, a bigger part of the return will be in eligible dividends. Do you think it is better to buy the individual companies in non-registered/taxable accounts and leaving the cash sit in the RRSP after selling XIC for future things?..........


There are many theories on this, but for myself, I keep all fixed income in my registered accounts, since interest income attracts the highest taxes. 

I keep all Canadian equities in non-registered accounts so I can enjoy the tax advantaged income.

I do understand that many ETF's and REITs often produce a cornucopia of tax types that are better suited to registered accounts, but for individual Canadian equities, I think non-registered is best.

ltr


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## john.cray (Dec 7, 2016)

like_to_retire said:


> There are many theories on this, but for myself, I keep all fixed income in my registered accounts, since interest income attracts the highest taxes.
> 
> I keep all Canadian equities in non-registered accounts so I can enjoy the tax advantaged income.
> 
> ...


Thanks for the response LTR. That is my understanding too and now is the point to correct the location of those equities. I already have (individual) REITs in my TFSA for the mix of distributions. The "paradox" here is that the money that I'll free up from the sale of XIC will stay unused in RRSP for a while, unless I decide to buy more bonds which will tilt the balance strongly.


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## like_to_retire (Oct 9, 2016)

john.cray said:


> Thanks for the response LTR. That is my understanding too and now is the point to correct the location of those equities. I already have (individual) REITs in my TFSA for the mix of distributions. The "paradox" here is that the money that I'll free up from the sale of XIC will stay unused in RRSP for a while, unless I decide to buy more bonds which will tilt the balance strongly.


Yeah, allocation across account types is often a problem. Allocation doesn't always line up with the percentages that we hold in registered and non-registered accounts. I certainly have this problem myself. I have most of my portfolios in non-registered accounts, and as such, my rather conservative allocation results in not only all registered accounts holding fixed income, but quite a bit of fixed income spills into the non-registered accounts. I simply have to accept that my taxes will be higher as a result as I'm not interested in altering asset allocation so it agrees with account type.

If simple cash in your RRSP is a big enough problem for you, then you will have to accept a change to your asset allocation so you can put it to work. 

ltr


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## john.cray (Dec 7, 2016)

like_to_retire said:


> Yeah, allocation across account types is often a problem. Allocation doesn't always line up with the percentages that we hold in registered and non-registered accounts. I certainly have this problem myself. I have most of my portfolios in non-registered accounts, and as such, my rather conservative allocation results in not only all registered accounts holding fixed income, but quite a bit of fixed income spills into the non-registered accounts. I simply have to accept that my taxes will be higher as a result as I'm not interested in altering asset allocation so it agrees with account type.
> 
> If simple cash in your RRSP is a big enough problem for you, then you will have to accept a change to your asset allocation so you can put it to work.
> 
> ltr


Fair enough. Thanks for confirming this. I thought there might have been a smarter way of shuffling things around 

On a related note, I just did some rough tax calculations with simpletax and of course if my wife, who has lower income than me, was to hold the non-registered investments then dividends would be taxed at a much better rate in her hands. Now if I have earned the money (thus paid all the taxes in my bracket) is there any problem or tax consequence whatsoever for me to transfer it to her account and all the holdings to be on her name? Is that a tax-wise thing to do?

Cheers


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## like_to_retire (Oct 9, 2016)

john.cray said:


> On a related note, I just did some rough tax calculations with simpletax and of course if my wife, who has lower income than me, was to hold the non-registered investments then dividends would be taxed at a much better rate in her hands. Now if I have earned the money (thus paid all the taxes in my bracket) is there any problem or tax consequence whatsoever for me to transfer it to her account and all the holdings to be on her name? Is that a tax-wise thing to do?


I'll let others tackle this issue as I have no dog in this race. My understanding is that you have to pay attention to Attribution Rules. These rules say that when you transfer or loan property to your spouse (or to a trust in which your spouse has a beneficial interest), any income or loss from that property is deemed to be yours for a taxation year.

ltr


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## AltaRed (Jun 8, 2009)

As LTR indicates, there are very specific rules and constraints on transfers and income splitting. Unlawful transfers and reporting of income is tax evasion and THAT can be very nasty stuff in CRA's eyes.

There are enough ways to 'split' income over time through inter-spousal loans at prescribed CRA interest rates, contributions to a spouse's RRSP and a TFSA....and finally in retirement, registered pension plan income to optimize tax avoidance (legal) and stay clear of tax evasion (illegal).


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## birdman (Feb 12, 2013)

I had my accountant run some tax scenarios and it showed I saved about $4,000. a year by keeping my fixed income in our RSP's and our dividend paying stocks in a non registered. Needless to say this is what we did.


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## john.cray (Dec 7, 2016)

AltaRed said:


> As LTR indicates, there are very specific rules and constraints on transfers and income splitting. Unlawful transfers and reporting of income is tax evasion and THAT can be very nasty stuff in CRA's eyes.
> 
> There are enough ways to 'split' income over time through inter-spousal loans at prescribed CRA interest rates, contributions to a spouse's RRSP and a TFSA....and finally in retirement, registered pension plan income to optimize tax avoidance (legal) and stay clear of tax evasion (illegal).


Thank you for those important points LTR and AltaRed. Another valuable lesson learned today! I'll be careful to follow those rules.

Appreciated!


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## john.cray (Dec 7, 2016)

I took a more careful read of the article pointed out by LTR and found the following in the exceptions:



> 21. Pursuant to subsection 74.5(1), income or loss from transferred property or any taxable capital gains or allowable capital losses on the disposition of the transferred property does not attribute to the transferor in a particular year where
> 
> (a) the sale or other transfer is made to the transferor's spouse for consideration equal to fair market value of the transferred property,
> 
> ...


My interpretation of the above is that you can temporarily transfer money (not as a loan) to your spouse within a given year and as long as your spouse repays it back to you within the same year then all the income and capital gains pursuing from the investment of such money are hers and not yours. Is that your interpretation as well?

Cheers


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## AltaRed (Jun 8, 2009)

I am not aware of those specifics but like anything else, better google for legal info and tax interpretations on that section. If there had been any real loophole, it would be well known by now by armies of expert tax accountants and tax lawyers, well used, and closed by CRA. Hence I am highly skeptical.

Examples: http://laws.justice.gc.ca/eng/acts/I-3.3/section-74.5-20040831.html and https://taxinterpretations.com/tax-topics/income-tax-act/section-74-5 

Any time I see things like


> Notwithstanding any other provision of this Act, subsections 74.1(1) and (2) and section 74.2 do not apply to any income, gain or loss derived in a particular taxation year from transferred property or from property substituted therefor if


 it suggests to me many wrinkles.


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## john.cray (Dec 7, 2016)

AltaRed, man, this gets very complicated very quickly. If I understand this correctly the part that you were referring to initially is described here:



> Loans for value
> 
> (2) Notwithstanding any other provision of this Act, subsections 74.1(1) and (2) and section 74.2 do not apply to any income, gain or loss derived in a particular taxation year from lent property or from property substituted therefor if
> 
> ...


So it sounds it's simpler to just charge interest. This is my current understanding:

If I gave money to my wife as a *loan* for which she pays me interest at a rate that CRA dictates, then all the income and capital gains/losses are hers and hers only for the entire period. As soon as she pays back that loan and the corresponding interest we're done and of course all subsequent dividends and capital gain/loss are hers.

In this scenario I get the interest from her and I add it to my income while she deducts the same interest she paid me from her income taxes. All dividends and capital/gain loss from the investment is added to her income and not mine. To implement this scenario we need to compose a Promissory Note with the loaned amount and prescribed interest from CRA.

Do you think my understanding is correct about this?

I am also curious about:
1. What is the current CRA prescribed rate? I found a few numbers and as far as I can tell the current annual interest rate should be 1%.
2. If she repays the full loan before the year is over, is the 1% prorated? I.e. if she pays it back in full after 1 month is the interest 1/12%?
3. Do you need to modify the promissory note somehow to indicate that the loan and interest has been paid back and it's all over? I.e. how do you finalize this kind of loan?
4. Does the promissory note need to be signed in-front of a lawyer or is it just between the two of us?

Cheers


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## AltaRed (Jun 8, 2009)

My guess is your interpretation is wrong because the net would be full of examples of how to do this, and tax accountants and lawyers would also be tripping over themselves. You need to talk to a tax accountant.


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## john.cray (Dec 7, 2016)

AltaRed said:


> My guess is your interpretation is wrong because the net would be full of examples of how to do this, and tax accountants and lawyers would also be tripping over themselves. You need to talk to a tax accountant.


Here's an article describing this same thing https://www.theglobeandmail.com/glo...te-with-a-spousal-loan/article15659225/?ord=1

I thought you were referring to the above method when you initially mentioned:



> There are enough ways to 'split' income over time through inter-spousal loans at prescribed CRA interest rates, contributions to a spouse's RRSP and a TFSA....and finally in retirement, registered pension plan income to optimize tax avoidance (legal) and stay clear of tax evasion (illegal).


Now I wonder what meant by "There are enough ways to 'split' income over time through inter-spousal loans at prescribed CRA interest rates" ...


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## john.cray (Dec 7, 2016)

Here's another article describing the same income-splitting (example included): http://business.financialpost.com/p...come/wcm/57800f41-8663-461e-b2ff-2127cac40fef


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## Jimmy (May 19, 2017)

john.cray said:


> Here's an article describing this same thing https://www.theglobeandmail.com/glo...te-with-a-spousal-loan/article15659225/?ord=1
> 
> I thought you were referring to the above method when you initially mentioned:
> 
> ...


I think you would have to prorate the interest or just do it to be safe.
The article just mentions there are many ways to split income w spouses. Lend and charge interest , contribute to spousal RRSPs, pension income splitting etc.


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## john.cray (Dec 7, 2016)

Jimmy said:


> I think you would have to prorate the interest or just do it to be safe.
> The article just mentions there are many ways to split income w spouses. Lend and charge interest , contribute to spousal RRSPs, pension income splitting etc.


I suppose you removed the part from the previous version of your comment where you thought that loans for less than 1 year don't need to be charged interest? I found no such reference and I think interest should be charged always.

Here's another article with a good example: http://www.taxtips.ca/personaltax/lend-to-spouse-child.htm


> If one spouse is in a higher tax bracket, it may be beneficial to lend money to the lower-income spouse. Money can also be loaned to a child. The funds can be used to purchase investments, and tax on the investment income will be paid by the lower-income spouse at a lower marginal rate. A promissory note should be written for the loan, with the interest rate and principal amount specified. Interest must be paid on the loan by January 30th of each year. The interest rate charged must be greater than or equal to the prescribed rate set by Canada Revenue Agency (CRA) at the time the loan is made, or attribution rules will apply. The prescribed rates are subject to revision each calendar quarter, and can be found on the CRA prescribed interest rates page. The rate to use is the one for calculating taxable benefits from low-interest and interest-free loans to employees and shareholders.


I checked on http://www.cra-arc.gc.ca/tx/fq/ntrst_rts/menu-eng.html and it's 1% indeed:


> The interest rate used to calculate taxable benefits for employees and shareholders from interest‑free and low-interest loans will be 1%.


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## AltaRed (Jun 8, 2009)

That is a standard inter-spousal monetary loan provision that has been around for decades. Nothing new there. What I doubt though is that stocks that have built up unrealized cap gains can be transferred/loaned to a spouse via inter-spousal transfer so that the lower income spouse can crystallize the cap gains. They are not the same thing.


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## john.cray (Dec 7, 2016)

AltaRed said:


> That is a standard inter-spousal monetary loan provision that has been around for decades. Nothing new there. What I doubt though is that stocks that have built up unrealized cap gains can be transferred/loaned to a spouse via inter-spousal transfer so that the lower income spouse can crystallize the cap gains. They are not the same thing.


I see. I never had that in mind. I was only thinking in terms of giving cash as a loan with 1% interest and then purchasing stocks with this cash.

I think it's pretty clear at this point that as long as you write a promissory note and charge the 1% annually to your spouse then all the income and capital gain/loss ensuing from the stock purchased with this cash belongs to the spouse receiving the loan, not the lender.


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## Jimmy (May 19, 2017)

john.cray said:


> I suppose you removed the part from the previous version of your comment where you thought that loans for less than 1 year don't need to be charged interest? I found no such reference and I think interest should be charged always.
> 
> Here's another article with a good example: http://www.taxtips.ca/personaltax/lend-to-spouse-child.htm
> 
> ...


I was thinking about something else. Loans reported as income from a company to an owner. There is none if repaid w in the year.


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## AltaRed (Jun 8, 2009)

john.cray said:


> I was only thinking in terms of giving cash as a loan with 1% interest and then purchasing stocks with this cash.
> 
> I think it's pretty clear at this point that as long as you write a promissory note and charge the 1% annually to your spouse then all the income and capital gain/loss ensuing from the stock purchased with this cash belongs to the spouse receiving the loan, not the lender.


Indeed. That is the standard inter-spousal loan provision that has been around for a long time.


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## john.cray (Dec 7, 2016)

AltaRed said:


> Indeed. That is the standard inter-spousal loan provision that has been around for a long time.


Thank you and everyone else who participated in this discussion. It was very educational for me, and I hope for others as well.

Cheers,
JC


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