Weekend Reading – More inflation, dividend income, questions from hell and more

Welcome to my first Weekend Reading edition for 2016.  How was your New Year?  What resolutions did you make?  Did you make any?  Any big plans for the new year?  Family plans?  Travel plans?  Other plans?  Send me a comment or tweet and let me know.  We’ve got some plans for 2016 and those include a few financial goals as well so if you missed them – check them out.

Enjoy this edition and see you here next week when I’ll share my dividend income update for 2015, and what I will be investing in, in 2016.

Our Bank of Canada Governor said to get used to a weaker Canadian dollar and more inflation.

Dividend Earner shared some dividend income for December 2015.

Michael James on Money shared some questions from financial hell.

Roadmap2Retire shared some investment picks for 2016.

Here are Dividend Growth Investor’s holdings for the long haul.

Not sure what to invest in for 2016?  Check out this post about ETFs and stocks built to last.

Although I won’t sell my stocks anytime soon, here’s another reminder why I should consider indexing more (because Warren Buffett says so).

According to this poll, some Canadians are planning to pay down debt in 2016.

Despite bond yields falling of late, RBC decided to increase their 2- to 5-year fixed rate mortgages.  I wonder how many folks will nibble on that when other deals can be had…

My name is Mark Seed - the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I'm looking to start semi-retirement soon, sooner than most. Find out how, what I did, and what you can learn to tailor your own financial independence path. Join the newsletter read by thousands each day, always FREE.

47 Responses to "Weekend Reading – More inflation, dividend income, questions from hell and more"

  1. Book suggestion for readers; “Canada’s public pension system made simple : the secrets to maximizing your retirement income from government pensions” Author: Tang, Lee, I have not read it yet, but have ordered it from the library.

    Year/Format: 2015, Book , x, 103 pages ;
    Summary/Review: This book was written to explain in layman terms how the Canadian public pension system works, what benefits are offered, how to apply for it, and how to get the most out of it. The target audience is people at or approaching retirement age, financial services professionals, and students of the public pension system. Subject matters include: the Old Age Security program, Guaranteed Income Supplements, Allowances, the Canada/Quebec Pension Plan, provincial income supplement programs and income supplements and disability pension offered by Veterans Affairs Canada. Financial planning strategies such as when to collapse your RRSPs and how to minimize OAS clawbacks are included – Provided by publisher.

      1. XIU has 578,400,000 units outstanding. The distributions for Mar, Jun & Sep showed Return Of Capital at the following rates and represent the following amounts:
        Mar 0.00411 cents for a total ROC of $2,377,224.00
        Jun 0.00434 cents for a total ROC of $2,510,256.00
        Sep 0.0053 cents for a total ROC of $2,620,152.00

          1. @Cannew: Expressed as percentages of net assets:
            2010: 0.17%
            2011: 0.31%
            2012: 0.23%
            2013: 0.06%
            2014: 0.15%
            Hardly a concern. If these were fees it would be cause for concern, but this is just a tiny slice of your money coming back to you.

  2. With all the discussion of Indexing I thought I’d look closer at XIU which concentrates on 60 Cdn stocks. What I found was:
    – 39.02% is Financials – ok by me
    – 18.32% is Energy – dislike
    – 42.6% other – ok
    However, when I looked at the dividends I found:
    – 18 have cut or pay no dividend over the past 5 yrs
    – 4 have slow growth, no div increase
    – 4 have less than 4 yr dividend history
    That’s 40% of the portfolio and 30% which cut the dividend.
    However, XIU has an Up & Down disbursement history (mainly up), which means they must be returning Capital since 30% of their portfolio has cut the dividend.

  3. Mark, seems a good chance you’re right that the decline is not over. There’s blood in the markets in much of the world it seems. Hard to go wrong with paying down debt and save for more investing.

    Cycling or re-balancing between equities/FI takes some effort and it’s doubtful you’ll be able to meet or exceed equity dividends only, if that’s your only consideration.

    On another note your CAPTCHA simple frequently doesn’t work for me. May take 2-3 attempts to post and get it right. Now I copy my post so I don’t have to redo it like I have several times. A few times I gave up!

    1. Sorry to hear about the CAPTCHA. Maybe I can write them and find out what’s up. I apologize, hopefully their bug will be fixed soon RBull.

      We will absolutely sell off capital eventually, but it’s the mindset of striving for a base to “live off dividends” that’s part of a forced savings plan for us right now, for the next 10 years. I guess what I’m saying is, we’ll simply keep our head down, save, then invest that money in stocks and ETFs and see where we’re at in 10 years. I can appreciate re-balancing between equities/FI takes some effort and I’m sure I’ll own more FI and bonds eventually simply not for another decade or more.

      1. No worries with the captcha. It’s possible I’ve made mistakes since sometimes it’s hard to interpret them.

        I’m 100% on board with your strategy for the forced saving. You’ll be prepared to take whatever approach may be appropriate when you feel you’ve achieved FI.

  4. Thanks cannew, no need for an apology. I applaud you for finding a method of generating a substantial income for the retirement you are happy with.

    I also do not suggest my method is the best or right for everyone either. It is our plan to spend capital gains and income generated, and eventually capital over time, because we see little reason to sacrifice lifestyle and leave substantial funds to charity.

    1. “It is our plan to spend capital gains and income generated, and eventually capital over time, because we see little reason to sacrifice lifestyle and leave substantial funds to charity.”
      Nothing wrong with that and I think the majority agree with you.
      For us, it was like the habit of saving, once you do it, it becomes a habit, so you keep saving. Also when the income became substantial we started to look further ahead and felt our income needs would not lessen, but probably increase. We do travel, have a place in AZ and though our health is good, we do foresee health costs rising, never mind inflation on everything else. We have friends who moved into a Care facility and their cost is Very Substantial. At 74, we’d rather leave a pile, than not have enough when we are 85, 90 or older should we make it.

  5. I don’t believe I have ever stated my goal as matching market returns, although based on history anyone who has done this has done very well indeed. Very few investors do.

    Perhaps you don’t understand market returns because you have a strong bias focusing only on income. I focus on cash flow. Cash flow that is generated from a balanced portfolio generating both income and capital gains over time (TOTAL RETURN). I prefer focusing on cash flow since over time I will also spend capital prudently, as I have mentioned in my profile and in numerous posts.

    1. Sorry RBull, didn’t mean to imply that was your goal. I don’t say my goals are better or worse, it’s what worked for me and provides the income I never thought I’d be getting during retirement. Unless the whole market collapses and 50% of my stocks cut their dividend, I don’t ever expect to draw capital or have to sell for income.

  6. Mark, the hybrid approach is working for you and may well be the best of both worlds. Often those with the courage to buy when there’s blood in the streets reap the rewards later.

    1. So far, it is, since I feel I need income to replace my working income in retirement – I suppose if understood better how cycling/selling off between bonds and stocks would provide just as much if not more income then potentially I’d follow that approach. There is certainly blood in the streets with many CDN stocks of late and I don’t think the decline is over. So, I will simply save money, pay down my mortgage, and wait!

  7. Anytime Mark. My pleasure.

    I totally understand the difficulty with investing now in anything US denominated. We enjoyed the ride up with our US dollar investments and cash stockpile, but it’s now affecting our spending with travel plans and destination choices.

    I like dividend payers too, as you know. I just don’t believe I can select a group of them which that will match the total return of an index. That’s my bias, but there seems to be much evidence to suggest this is right.

    I don’t think anyone can invest like Buffet. That’s part of my reason for comments about his take on indexing for most people.

    Good point on CDN companies. The smart ones are diversifying where they can. I was reminded of this when recently in Hong Kong I saw a huge Manulife building. It was one of few company branded, in a city of 8000 skyscrapers, which is double the number in New York City.

    Correction! We got a raise from CU this week.Thanks for pointing it out. I’m guilty of not paying much attention to individual companies performance including dividend changes. Like everyone, I enjoy getting paid more. Yes, it could be a good time to add CDN equities. My plan is telling me to do that to stay in balance.

    1. I do like CDN and US dividend payers but I’ve appreciate the merits of indexing more in recent years. I think my bias will always be to hybrid invest but it would be nice to own a healthier split of indexed and dividend stocks in my portfolio – I’m working towards that.

      We’ll see how many more dividend increases occur this winter and spring. I suspect those increases are gone from the oil and gas sector this year for CDN stocks anyhow. My plan is telling me to do buy beaten up assets and simply invest when I have the money, beaten up CDN stocks and more international assets this year.

    2. I’ve never really understood why Matching Market Returns is a meaningful goal? Are not markets returns just changes this year from last and really a Paper figure, unless you sell. I prefer comparing the Income received this year from last because that’s what will sustain me. It’ money I can spend. Of course if one plans to sell capital for Income, than the market value is important.

      1. re: “I’ve never really understood why Matching Market Returns is a meaningful goal?”

        It’s not only not meaningful but almost always the wrong goal (which leads to wrong behaviour).

        “Beat the Market” is merely yet another marketing tool used by the financial sector to lure your money away from you and into the pockets of market non-beating fee-charging “pros”.

  8. Another interesting collection of articles Mark.

    I agree with your informed perspective on good and bad companies in ETFs. The ones listed simply are “the market” and this naturally rotates over time, so trying to pick “only good or best ones” doesn’t matter if market returns are desired. There is much empirical evidence to show this simple approach works well for near total market return at low cost.

    Buffets advice was for his own shareholders, retirees, trustees and average investors and not “know nothings”. He’s smart enough to know as arguably the worlds greatest stock picker, that individual DIY investors aren’t Buffets and indexing is the next best thing. He is even willing to bet on indexing vs. top professional managers.

    I think the Poloz comments may make more than just bond holders nervous. Investors with an exclusive CDN equity portfolio -especially heavy resource based (without international diversification), people with exclusively CDN currency investments, and those heavily indebted or looking to or recently leveraged up in expensive real estate due to job insecurity. I’m actually feeling good having money in CDN corporate debt for the foreseeable future.

    1. Thanks RBull, always appreciate your comments…

      I’m trying to index invest more but finding it hard to overcome my bias to dividend payers. It doesn’t help with the CDN dollar in the pits, I cannot buy VTI as much as I would like. I guess I will simply save up and wait. It’s all I can do until I have enough to gambit.

      There is no way I could be like Buffett as an investor, mind you, he has significant leverage because he’s a dominant shareholder in many companies and can manipulate to a degree, the direction and therefor the success of those companies. There is no hope of that for a small potato like me.

      The thing though is, many CDN companies have international diversification. CDN banks, SLF, MFC, utilities and BIP.UN operate around the world. I would though be worried about someone who has absolutely no US or international exposure but that’s the risk you take with no diversification. Then again, if you have a 40-year investing timeline, it’s a great time to load up on CDN dividend paying stocks 🙂 I got a 10% raise from CU this week.

  9. Buffett’s advice is more about fees than returns. In the coming generation of low returns, it will be fees that determine the success of a portfolio. That’s why he suggested the 0.05% S&P fund for “know nothing” investors.

      1. @Mark: More important than knowing little about stocks is admitting you don’t know much about stocks. I rarely encounter people whose knowledge of a stock is more than superficial. A question I use as a test is “in the company’s latest annual report, which of the notes to the financial statements did you find revealed useful information?” Anyone who can’t do this from memory is unlikely to have anything useful to say about the stock.

        1. I certainly don’t memorize annual reports but I don’t know many investors who do. You would have to border on genius to know the intimate details of dozens of stocks based on their quarterly reports and annual reports over the last few decades. Some people don’t know what mutual funds they own!

          1. @Mark: There’s no need for genius. I’m just talking about diligent study. Some people are able to memorize large volumes of data, but I’m just talking about evidence of study. If you’ve read an annual report and have thought about the meaning of all the notes in the financial statements, some of the more surprising ones will stick in your memory. If you didn’t do this amount of study, it’s unlikely you’ll have much useful to say about a stock. Sadly, even if you do this level of study you probably will still have no profitable insights.

            1. Whether it’s annual reports or TMX data, I personally look at the cash flow and income statements but like everyone else, I can’t predict the financial future. What looks good today but be bad, or vice-versa tomorrow!

          2. @Mark: Trying to learn about a stock from the information on TMX is like trying to learn about healthy eating by reading cereal boxes. It’s hopelessly superficial. You need to dig into annual reports and other public filings, and even then, the pros will get there first.

  10. ETF’s: Many investor guru’s (which I am not) suggest re-balancing or re-weighting your portfolio periodically. Say if a stock or sector rises well above others, one should invest in the lower stocks or sector. Wonder why no ETF’s follow such a strategy, or do they? From what I’ve seen there is a Top 10 where a good percentage is invested then smaller amounts in the rest.

    I like Kanwal Sarai’s comment where he says it may be easy to pick 10 good stocks, but as the number increases the quality of your choice diminishes, such that your 100th or 200th choice may not really have a clear value. That’s my view on ETF’s, especially where the number of holdings is above 100, as some hold up to 7,000 stocks.
    ETF’s holdings listed by Mark:
    VTI 3791
    VXUS 5998
    VXC 7193
    VCN 231
    XAW 5315
    XIC 242
    XIU 62
    ZCN 241

    1. If you’re a DIY investor it will be largely up to you to rebalance your portfolio, whether that’s ETFs or other products/assets. You might already know there are market capped ETFs, equal-weight ETFs and fundamental ETFs – not all ETFs are created equal.

      This is always a con with indexed ETFs, you’ll get the “good stocks” and the “bad stocks”. The challenge for investors have always been, do good stocks survive and thrive? If so which ones? Do bad stocks get better and become good stocks or stay as duds? Which ones? The indexer never has to worry…

      There is beauty in simplicity but I can appreciate both approaches (indexing and dividend investing) which is why I do both.

      1. re: “Do bad stocks get better and become good stocks…?”

        I could be wrong (I doubt it), but the companies which have been delisted from the S&P for underperformance, as an “index” of their own, have out performed the S&P.

        Looking at only the S&P index is survivourship bias.

        1. Fair, but not every company in the S&P 500 goes under. Delisted from that index, yes, but not belly up. That is what I was referring to in my bad stocks can become good stocks again. Like Apple. How many people bought that in the mid-2000s? When you buy an equity index fund, it’s simply a collection of stocks and not always the top performing ones of course.

  11. Buffet: Advice for others: “Do As I Say, Not What I Do”.

    Marks “Not sure what to invest in 2016” includes 10 of my eleven recommendations and all seven of the condensed list.
    As with Dividend Growth, find a concentration of good stocks and build your position in them over time!

    ETF’s? Diversification yes, but are their top holdings the best ones or just the ones to generate income or growth? Then are are the rest, some of the ones listed have over 1000 stocks. Can they all be good? or are they just filler.

    1. I have a bias to Canadian banks, pipelines, utility and telcos for owning individual stocks cannew. I figure if those companies go under we’re all doomed!

      For investing abroad, I like ETFs like VTI because there are literally hundred of top stocks in the U.S. to select from and I don’t wish to read tons of annual reports to figure that out. Sure, I own a few blue-chip, dividend aristocrats from the U.S. but everything else is indexed more every year.

  12. The week is not over yet 😉

    Thank you for including me in your weekend review Mark. We may be able to get a lot of future dividends and capital gains at lower prices this year.

    The most interesting thing in Buffett’s plan is how he chose the S&P 500 over his company Berkshire Hathaway. That has got to be pretty telling for BRK shareholders.

    Dividend Growth Investor

    1. Crazy week. I hope to make a few more purchases as things tank. That’s the plan anyhow.

      I also found it interesting he selected the S&P 500 (not a broader index) and not only that, put 100% of his faith of which 90% of his faith in U.S. equities vs. no international holdings.


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