Investing styles

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor. Seeking advice on your portfolio?
SQRT
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Re: Investing styles

Post by SQRT »

like_to_retire wrote:
ghariton wrote:
Larry Swedroe wrote:In summary, 2008 should have taught investors that dividend-paying stocks aren’t a viable alternative to safe bonds. Unfortunately, far too many investors failed to learn that lesson, one that could prove to be very expensive when the next bear market arrives.
What lesson was learned in 2008? All my dividends continued to pay, while the lower share prices that had no effect on my income allowed for some nice purchases. Compare this to the Total Return followers who had to sell depressed stocks to feed their income needs. I know the lesson I learned - dividend investing works.

ltr
That was also my lesson. Dividends have been around for a long time. I doubt the current enthusiasm has inflated CDN prices very much. There are plenty of very good companies paying 3-4%. Banks, telcos, pipes, some utilities. All seem like pretty good bets to me. But what do I know?
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Re: Investing styles

Post by longinvest »

like_to_retire wrote: What lesson was learned in 2008? All my dividends continued to pay, while the lower share prices that had no effect on my income allowed for some nice purchases. Compare this to the Total Return followers who had to sell depressed stocks to feed their income needs. I know the lesson I learned - dividend investing works.
Were not Total Return followers feeding their income needs selling inflated bonds and using the excess to buy depressed stocks?
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Re: Investing styles

Post by like_to_retire »

longinvest wrote:Were not Total Return followers feeding their income needs selling inflated bonds and using the excess to buy depressed stocks?
They probably would have liked to, but due to the attractive GIC rates compared to Bond prices for the last decade they didn't have any bonds to sell.

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Re: Investing styles

Post by longinvest »

like_to_retire wrote: They probably would have liked to, but due to the attractive GIC rates compared to Bond prices for the last decade they didn't have any bonds to sell.
:thumbsup: :rofl:
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AltaRed
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Re: Investing styles

Post by AltaRed »

SQRT wrote: That was also my lesson. Dividends have been around for a long time. I doubt the current enthusiasm has inflated CDN prices very much. There are plenty of very good companies paying 3-4%. Banks, telcos, pipes, some utilities. All seem like pretty good bets to me. But what do I know?
Until it isn't. Canada simply lucked out not having the likes of AIG, BAC, etc. where dividends were wiped out. MFC was the main casualty if I recall correctly. Many of our dividend yielding stocks, pipes for example, have multiples well above historical levels. The work Yielder (Mike Higgs) used to do would now show that in spades. Don't know if anyone else every picked up documenting and publishing high/low yield ranges.

I am primarily a dividend investor too (my portfolio yields in the range of 3%) but I am not naive enough to believe dividends are the holy grail in a major financial crisis. A severe economic jolt would test the dividends of all those companies you speak of. I prefer to look at a group of metrics including ROE. I want to be sure my equity is getting, where possible, a double digit rate of return over a rolling forward period.
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Re: Investing styles

Post by Taggart »

Well I admit, for me at least, it's not always easy to pick the survivors in a sector bear market. Perhaps on the third try I'll hit it lucky. The trouble is, I haven't had enough practice. Too much bull since the early 80's, and not enough bear.
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Re: Investing styles

Post by lacrosse905 »

We are at the point that there is more than enough cash coming out of the rrif, plus cpp, small db pension...very little oas, however, that covers everything we need monthly, including vacations and whatever comes up, we could still put some of the rrif funds back into the non-registered account, but choose not to do so. We will probably reduce the rrif withdrawals to 7% in January if it has been all legislated by then, we are currently at 7.59% withdrawal rate.

We don't have to go into the non-reg account. The non-registered accounts are all dividend payers. We have kept 40% of the non-registered funds in hisa's and gic's paying peanuts, but this has been a safety consideration after the 2008 downturn and like most of you here on this forum, we didn't have to sell anything and did buy into that mess, which had been beneficial

At this point, the capital gains in the non-registered account is rising. I (we) are looking at the acb's....the original cost base on most of what we hold, is very low...so we have been adding to these which brings the acb up a bit so that when our kids end up cashing out, there will still be cap gains, but it will be lessened somewhat. ie: IPL acb $9.88. PPL ...16.44....TRP 24.00 the banks we hold have a very low acb, so they again are on my list so that is what I am buying these days, if this is an investing style so be it, it works for us. The stocks we have chosen over the years have been blue chip with a few dogs also, but overall, like most of you, has worked out great. Please comment yeah or nay..but as I look at the overall picture out there I would not want to be starting a portfolio today.
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Re: Investing styles

Post by Flaccidsteele »

This thread should be called 'Investing luck'

It might even be more accurate ;)
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Re: Investing styles

Post by Taggart »

ghariton wrote:Larry Swedroe on investing in dividend paying equities
The low yields generally available on safe bonds during the past six years have led many once-conservative investors to shift their allocations from safe bonds to much more risky dividend-paying stocks. This has been especially true for those who take an income, or cash flow, approach to investing, as opposed to the total return approach, which I believe is the right one.

The interest in dividends also arises from the belief that dividend-paying stocks are better investments.

<snip>

It’s also important for investors to understand that the popularity of a strategy correlates negatively with future expected returns. In short, the popularity of dividend-paying strategies has altered their very nature. Dividend-paying strategies historically have been value strategies.

Yet Morningstar data shows that, as of April 29, 2015, the price-to-earnings (P/E) ratio of SDY was 19.6, higher than the P/E ratio of 18.1 for the SPDR S&P 500 ETF (SPY | A-98). The price-to-book ratio for SDY is also higher, at 2.6, compared with SPY, which is at 2.4. Higher price-to-earnings ratios and book value forecast lower future returns.

<snip>

In summary, 2008 should have taught investors that dividend-paying stocks aren’t a viable alternative to safe bonds. Unfortunately, far too many investors failed to learn that lesson, one that could prove to be very expensive when the next bear market arrives. The problem is compounded by the fact that the popularity of dividend strategies has led to valuations now above those of the overall market. Forewarned is forearmed.
I personally invest in broad market indices, such as VTI.

George
Josh Peters - Morningstar's Dividend Playbook

"I mention all the time that I am not trying to beat the market. And in only four of the first 10 years we were in business with our model portfolio did our return exceed the S&P 500; but cumulatively, without even trying, without targeting this head-to-head horse race that so many professional and even individual investors think about, we've been able to top the return of the market while earning a lot more income and taking a lot less risk. This chart set on top shows the cumulative total return. Starting at zero on our first day in business, we've compounded at 9.2% in just over 10 years, while the S&P 500 has done 7.9%. Now, that's nice, but how did we get there?

I really don't think it is strictly a function of my brilliance as a stock-picker. I think we have a sound investment strategy, but what has really advantaged to us was just the dividend income itself."
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Re: Investing styles

Post by SQRT »

lacrosse905 wrote:
At this point, the capital gains in the non-registered account is rising. I (we) are looking at the acb's....the original cost base on most of what we hold, is very low...so we have been adding to these which brings the acb up a bit so that when our kids end up cashing out, there will still be cap gains, but it will be lessened somewhat. ie: IPL acb $9.88. PPL ...16.44....TRP 24.00 the banks we hold have a very low acb, so they again are on my list so that is what I am buying these days
You realize of course that buying higher priced stock that you already own will not reduce your total cap gain. This will increase the ACB per share but since you now own more shares the total cap gain will be the same. If you sell a portion, the cap gain relating to those shares will be reduced but once all is sold the cap gain is the same. You are confusing per share values with total values while share counts increase. Common misconception, I suspect.
Last edited by SQRT on 31 May 2015 08:47, edited 1 time in total.
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Re: Investing styles

Post by gsp_ »

SQRT wrote:
lacrosse905 wrote:
At this point, the capital gains in the non-registered account is rising. I (we) are looking at the acb's....the original cost base on most of what we hold, is very low...so we have been adding to these which brings the acb up a bit so that when our kids end up cashing out, there will still be cap gains, but it will be lessened somewhat. ie: IPL acb $9.88. PPL ...16.44....TRP 24.00 the banks we hold have a very low acb, so they again are on my list so that is what I am buying these days
You realize of course that buying higher priced stock that you already own will not reduce your total cap gain. This will reduce the ACB per share but since you now own more shares the total cap gain will be the same. If you sell a portion, the cap gain will be reduced but once all is sold the cap gain is the same. You are confusing per share values with total values while share counts increase. Common misconception, I suspect.
Good spot. Not only is it not beneficial, it is a hindrance. By adding to stocks in large capital gains position the investor negates the possibility of tax loss harvesting if a correction were to follow. Fresh ACBs(by instead buying new stocks not already in large CG position) are preferable.
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Re: Investing styles

Post by StuBee »

SQRT wrote:...This will reduce the ACB per share...
I think you meant "this will increase the ACB per share"
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Re: Investing styles

Post by SQRT »

StuBee wrote:
SQRT wrote:...This will reduce the ACB per share...
I think you meant "this will increase the ACB per share"
Yes, I noticed that and corrected.
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Re: Investing styles

Post by SQRT »

AltaRed wrote:
SQRT wrote: That was also my lesson. Dividends have been around for a long time. I doubt the current enthusiasm has inflated CDN prices very much. There are plenty of very good companies paying 3-4%. Banks, telcos, pipes, some utilities. All seem like pretty good bets to me. But what do I know?
Until it isn't. Canada simply lucked out not having the likes of AIG, BAC, etc. where dividends were wiped out. MFC was the main casualty if I recall correctly. Many of our dividend yielding stocks, pipes for example, have multiples well above historical levels. The work Yielder (Mike Higgs) used to do would now show that in spades. Don't know if anyone else every picked up documenting and publishing high/low yield ranges.

I am primarily a dividend investor too (my portfolio yields in the range of 3%) but I am not naive enough to believe dividends are the holy grail in a major financial crisis. A severe economic jolt would test the dividends of all those companies you speak of. I prefer to look at a group of metrics including ROE. I want to be sure my equity is getting, where possible, a double digit rate of return over a rolling forward period.
Fair enough, I did have a bit of MFC and it was my only "casualty" of the crises. Just seems pretty unlikely to me that the divs will be cut for those type of co's I mentioned. Agree not impossible but there are very few "sure bets" in investing.
I am most familiar with the banks who all have at least mid teens ROE's, an extremely robust relatively diverse business model, pervasive effective regulatory oversight, payout ratios under 50%, much higher capital ratios than in the past, etc. I agree that other businesses, eg telco and pipes would not be as secure re divs as the banks. Wouldn't say I was naive, just a little more sure of my divs than you are. Maybe it's because I am so overweight the banks?
Also, I doubt we will see another crises as severe as the last one for quite a while. Hopefully for the rest of my investing life. Even if we did, I expect the CDN banks would do at least as well as they did last time. Agree there are no guarantees though.
There are ways to protect against div cuts, such as keeping a fairly high cash or FI buffer. I suspect most people living off their investments do this in any event.
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Re: Investing styles

Post by kcowan »

SQRT wrote:There are ways to protect against div cuts, such as keeping a fairly high cash or FI buffer. I suspect most people living off their investments do this in any event.
I would be interested in how many here have a large FI buffer. My cash buffer has continued to build since 2008. It is not from selling stocks (although Tim Hortons contributed). I guess I believe that we are headed for another correction when Janet starts charging for money again.

I have to admit that 5 years is a long time to wait. But just when I think I should capitulate, I stay the course.
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Re: Investing styles

Post by AltaRed »

kcowan wrote:I would be interested in how many here have a large FI buffer. My cash buffer has continued to build since 2008. It is not from selling stocks (although Tim Hortons contributed). I guess I believe that we are headed for another correction when Janet starts charging for money again.

I have to admit that 5 years is a long time to wait. But just when I think I should capitulate, I stay the course.
I could probably weather a 10 year equity market collapse/recovery from my FI component partly because I have some FI (mostly HISA and GICs), partly from a smallish DB pension, and at least some dividend and other income (commons, prefs, REITs) even if that income was halved or quartered during a major financial crisis. As I mentioned before, I did not have to touch equity capital during the last crisis.
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Re: Investing styles

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kcowan wrote: I would be interested in how many here have a large FI buffer.
Lots of cash /short FI here. I haven't sold anything but the funds have been accumulating. To explain a bit I have a dual investing plan. My employer plan is on autopilot with 20% of my income invested monthly. In my discount broker account the plan is to grow the portfolio maintaining the allocation plan and pick up things like RRBs and emerging markets that I can't get in the employer plan.

Most paper assets seem expensive, the US stock market in particular, so the broker account has accidentally turned into an active investing account on the buy side :lol: . I haven't sold any long term investments and the only thing I have bought (outside the employer plan) in the last 2 years is VWO, not including a few fun stocks. You can't time the market and all that so my employer plan is there to cover the emerging behavioural stupidities in the personal broker account. Interest rates: who knows? They will probably stay low for years but when they move they can move fast so I don't see any reason for long bonds or a total bond index. Short term interest rates are pure chaos so I sleep fine with GICs and/or a short bond index fund for holding cash. The comical problem for a conservative investor is when to deploy the cash to the portfolio!
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Re: Investing styles

Post by BRIAN5000 »

My latest target is to have 1/3 of income from each of a DB pension plan, Interest and Dividends. Allocated as best as possible within taxable and non-taxable accounts. If any one gets reduced or taxed at a higher rate I should be ok, I think.
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Re: Investing styles

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I'm still following Shakespeare's iron rule. Enough from CPP, OAS and my wife's small DB plan, plus interest on FI, for basic living expenses. The plan was to fund all the "nice to have" stuff from selling off equities -- and eventually from mandatory withdrawals from RRIFs. However, to my great surprise I'm still working part time, and that replaces the selling off of equities, for now at any rate.

Notice that dividends have no explicit role in this. I consider them a bonus.

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Re: Investing styles

Post by DenisD »

Much more selling than buying for the past 6 years. Building up cash. Following my value averaging plan. :wink:
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Re: Investing styles

Post by like_to_retire »

kcowan wrote:I would be interested in how many here have a large FI buffer. My cash buffer has continued to build since 2008. It is not from selling stocks (although Tim Hortons contributed). I guess I believe that we are headed for another correction when Janet starts charging for money again.

I have to admit that 5 years is a long time to wait.
I just stick with my allocation of 50% fixed, 20% preferreds, 25% equities, 5% cash. I admit that I throw off a lot more cash than I need, so the excess cash goes into maintaining that allocation straight away. I never rely on my ability to predict that I should build up cash for some future event, because I don't have a clue.

You've spent 5 years building up cash - wow. I do know that over that 5 years I've certainly done pretty good with all the cash I've plowed back in. But, if the mega event that you're obviously predicting transpires, then you'll be ready and I won't. We'll see how it goes.

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Re: Investing styles

Post by Taggart »

like_to_retire wrote: I admit that I throw off a lot more cash than I need, so the excess cash goes into maintaining that allocation straight away. I never rely on my ability to predict that I should build up cash for some future event, because I don't have a clue.

ltr
In this respect, I'm much the same as LTR.
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Re: Investing styles

Post by DenisD »

In my case, building up cash for 6 years means I've been ahead of plan for 6 years. :beer:
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Re: Investing styles

Post by SQRT »

Keep in mind that for the kind of equities I invest in, the probability of significant div declines is much less than a significant correction in equity prices. The latter is almost a sure thing while the former would be quite rare.
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Re: Investing styles

Post by Springbok »

SQRT wrote:Keep in mind that for the kind of equities I invest in, the probability of significant div declines is much less than a significant correction in equity prices. The latter is almost a sure thing while the former would be quite rare.
That's what happened the last time around for us (08/09). Our portfolio value dropped by about 1/3. Equities likely by more, because some bond values increased. But income from our investments hardly changed.

At present, our %FI is down to about 40%. But a 1/3 drop in equities would move that back up to 60%! I hate using percentages for allocation - they don't mean much! We have a dollar amount in FI that even at today's low interest rates would spin off enough income. That combined with CPP/OAS is enough for us to live on reasonably comfortably. But, we would have to tighten our belts a bit.
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