Clippings 2017

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ghariton
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Re: Clippings 2017

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Larry Swedroe has a piece that describes, once again, that the market gurus and other experts can't forecast better than random:
Unfortunately for investors, there’s a whole body of evidence demonstrating that market forecasts have no value (though they supply plenty of fodder for my blog)—their accuracy is no better than one would randomly expect.

For investors who haven’t learned that forecasts should only be considered entertainment (or that they may fall into the more nefarious category of what Jane Bryant Quinn called “investment porn”), they actually have negative value because forecasts can cause such investors to stray from well-developed plans.
And yet people keep paying good money for the experts' newsletters.

Darts or broad market indexes -- take your choice.

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Re: Clippings 2017

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ghariton wrote: 31 Jul 2017 12:04 And yet people keep paying good money for the experts' newsletters.

Darts or broad market indexes -- take your choice.

George
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Re: Clippings 2017

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This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed
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Re: Clippings 2017

Post by gobsmack »

An interesting freaknomics podcast episode about indexing. Some good interviews in there.
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Post by Park »

The following is some information about fixed income for the novice investor.



http://cawidgets.morningstar.ca/Article ... ture=en-CA

"CDIC will reimburse insured deposits up to $100,000 -- principal and interest combined -- for each of the seven insurance categories (deposits held in one name, more than one name, a RRIF, an RRSP, a TFSA, a trust and for paying taxes on mortgaged properties). Foreign-currency GICs or deposits with terms of five or more years aren't protected...In the event of a failure, access to your account will no longer be available. But CDIC will aim to reimburse savings, chequing, joint and mortgage tax accounts within three business days. For deposits in trusts, the organization will inform broker-trustees about the process to reimburse insured deposits. Within seven business days of receiving wire/transfer payment information, CDIC will remit payment to broker-trustees. For registered deposits, CDIC will hold them for several days while it works with the Canada Revenue Agency to ensure they remain tax-sheltered. CDIC will then contact these depositors to inform them of next steps."



https://www.theglobeandmail.com/globe-i ... e14935982/

This 2013 article (it may have changed since) states that the insurer for Manitoba credit unions is not part of the Manitoba government. However, some provincial insurers (Ontario and Alberta are examples) are provincial government agencies or have provincial government backing. My impression is caveat emptor, when it comes to credit union deposit insurance.



http://www.moneysense.ca/save/investing ... ed-income/

"The best five-year rate offered in mid-November by GICdirect.com through 150 small financial firms across Canada was 2.4%, which compares to only 1.5% offered by the big banks. GIC issuers pay financial advisors or deposit brokers a one-time fee of about 0.25% per year of term, says Ritchie. You can get a slightly better rate (2.5% when the comparison was done) by going direct to certain GIC issuers, but you will need to comparison shop yourself."

This 2016 article would suggest that a DIYer can do a bit better than by using a deposit broker.



http://www.finiki.org/wiki/Guaranteed_I ... ertificate

"Many GIC issuers (such as your neighbourhood bank) may not give their best rate on first enquiry. Often they will first quote the official rate that they post in the branch and report to CANNEX and Fiscal Agents for publication in your local newspaper. If you have a good relationship with the institution, e.g., a bank account, Registered Retirement Savings Plan (RRSP), mortgage, credit cards, etc., and/or you want to purchase a relatively large GIC, at least $5,000 or $10,000, then you should be able to get a bonus rate of interest. Ask to speak with a bank officer, point out the length and value of your relationship and ask for a better rate."

http://canadianmoneyforum.com/showthrea ... -GIC-Rates

"Not from what I have seen. TDCT offers 5yr @ 2.3%. Best rate I see at TDW is 2.55%. What I'm hoping to negotiate is closer to 3%, as Oaken is offering."
"you can see a pattern in these responses, which is that a client's history & profile with a particular bank do determine the small increments above posted rates for GICs that will be offered to him. Several cmf members with extensive GIC holdings have documented this. They always receive a rate that is a notch higher than the posted rate. How to ascend into their glittering & exclusive company? i have no idea, i suppose criteria such as size of account, length of time in the bank relationship, size of mortgage matter ...the higher increment itself is usually reported to be quite tiny. Jumping from 2.30 or 2.55% to 3% would be unheard of."

My impression is that one can negotiate a better rate, but the difference won't be large.
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Re: Clippings 2017

Post by longinvest »

Good reminder. Thanks! :thumbsup:
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Re: Clippings 2017

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And an article on CIPF and MFDA protection


“Right now,” she said, “investors should make sure they’re dealing with either an IIROC or MFDA member if they want this protection.”

It’s primarily the cash in your investment account that is at risk if your firm goes bankrupt, although securities are also covered. “In Canada, client [cash] money is in the mix of the company money, just like it would be at a bank,” Mr. Reszel said. “It’s not held separate and apart in a trust account.”

https://www.theglobeandmail.com/globe-i ... e19783968/

Both CIPF and the MFDA’s investor protection plan cover investors for total assets of as much as $2-million. That’s $1-million for “general accounts,” typically a cash or margin account, and $1-million for “separate accounts” such as registered retirement savings plans and registered retirement income funds. If you have multiple general or registered accounts at a firm, they would be aggregated and considered as a single account.

TFSAs, being comparatively new...................Ms. Reszel said. “At this moment, I would consider them to be part of your general account.”

TFSA's came out in 2009 and this article was 2014 and they still don't know for sure? :?
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Fixed Income For A Taxable Investor

Post by Park »

If you're in a higher marginal tax bracket and are investing in fixed income in a taxable account, you have a problem.

What can be done?

https://www.canadianportfoliomanagerblo ... b-vs-gics/

Justin Bender points out that HBB is one solution:

"This ETF uses a total-return swap structure, which effectively converts the interest payments (which are taxed at the investor’s marginal tax rate), into deferred capital gains (which are taxed at only half the investor’s marginal tax rate, and only when the ETF is ultimately sold). Due to this advantage, HBB would be expected to have higher after-tax returns than a traditional bond ETF, like XBB"

He then goes on to show though that investing in GICs might result in a similar (possibly slightly higher) aftertax return than HBB. This is due to the fact that pretax return would be higher on GICs than HBB.

There are advantages to HBB. HBB is more liquid than GICs. If interest rates go up significantly, HBB would likely be more attractive.

There are advantages to GICs. You run the risk of the government disallowing the swap structure of HBB. As long as your GICs are backed by the CDIC, there's less credit risk with GICs. With the ETF structure of HBB, you give up the certainty of interest and return of principal that you have with GICs. The weighted average duration of HBB is 6.82 years. If you're looking to match assets to liabilities within the next 5 years, GICs would be preferable.


Another solution would be discount bonds.

There are advantages to discount bonds. Discount bonds are more tax efficient than GICs. Discount bonds may have lower costs; HBB's costs are up to 0.24%. With discount bonds, you get certainty of interest and return of principal. You can also match the duration of assets to your liabilities. You get liquidity, compared to GICs. You can choose your credit risk exposure; HBB is 43.8% AAA, 37.4% AA, 9.8% A and 9% BBB. About one third of HBB's exposure is to corporate bonds. With discount bonds, you're not exposed to the risk of the swap structure. You don't have the $100K limit of CDIC coverage; this also applies to HBB.

There are disadvantages to discount bonds. Discount bonds will be less tax efficient than HBB. The biggest disadvantage of discount bonds is that there isn't a lot of them right now, although that may change.

At present, I'm not shopping for fixed income products. But I wouldn't be surprised if GICs now and in the future would be an attractive alternative to discount bonds.
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Re: Clippings 2017

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https://ofdollarsanddata.com/retiring-o ... c1f777f276
Retiring Off Dividends: What Are the Odds?
A Simulation of Retirement Dividend Income Using Varying Savings Rates and Time Horizons

The retiree was unable to cover their retirement expenses using dividend payments in more than half of the situations I investigated. Importantly, there was no time horizon where a 10% savings rate was sufficient to retire on dividends alone.
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Re: Clippings 2017

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BRIAN5000 wrote: 09 Aug 2017 12:14 https://ofdollarsanddata.com/retiring-o ... c1f777f276
Retiring Off Dividends: What Are the Odds?
A Simulation of Retirement Dividend Income Using Varying Savings Rates and Time Horizons

The retiree was unable to cover their retirement expenses using dividend payments in more than half of the situations I investigated. Importantly, there was no time horizon where a 10% savings rate was sufficient to retire on dividends alone.
No projected dividend growth in the simulation.
Using the yield from S&P 500 Index ETF.
This seems far too conservative (i.e. not useful) for someone who intends to follow a dividend income investment approach.
"A dividend is a dictate of management. A capital gain is a whim of the market."
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Re: Clippings 2017

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Descartes wrote: 09 Aug 2017 13:13 No projected dividend growth in the simulation.
Using the yield from S&P 500 Index ETF.
This seems far too conservative (i.e. not useful) for someone who intends to follow a dividend income investment approach.
Dividend growth is built in at the same rate as SPY appreciates, i.e. yield stays constant at 1.9%.

This is a US centric analysis based on Buffett's mantra to put 90% in the S&P500 and forget it. That is a reasonable approach for a US citizen. If a higher yield percentage was chosen, by definition, capital appreciation would have to be less (to make yield percentage go higher). As the article discusses, the S&P500 yield percentage is almost at a historic low.... The problem is not dividend distributions themselves, It is that market valuations have gotten way out of hand, e.g. P/E of 24 or so rather than 14-15. And lest one argue that a dividend ETF would be a better choice, those 'value' ETFs got hammered in the financial crisis when financials slashed their dividends. You have to pick one or the other...either reduced valuations and higher dividend yield. or continuing today's assumptions.

This is for the average investor, not a stock picker using a Dividend Aristocra approach.... which might be better, or not. I think most of us could do better but it is very difficult to bet against the S&P500.

If there is a flaw in the analysis, it is that someone focusing on a dividend stream in retirement would pick a higher yield index ETF. Even then, the author does deal with that by making the switch out of SPY at retirement into a higher yielding vehicle.
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Re: Clippings 2017

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AltaRed wrote: 09 Aug 2017 16:21 This is for the average investor, not a stock picker using a Dividend Aristocra approach.... which might be better, or not. I think most of us could do better but it is very difficult to bet against the S&P500.
You are completely missing the point that the article is about surviving on dividend income alone not total return.

S&P 500 is made up of a lot of non-dividend paying and low-dividend paying and no-growth dividend paying stocks.
If you are focused on dividend income alone then you would choose something that would serve that interest better (even if it is at the cost of excluding growth stocks that might provide better capital gain in the long term).

This article is useless to any serious investor.
"A dividend is a dictate of management. A capital gain is a whim of the market."
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Re: Clippings 2017

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Descartes wrote: 09 Aug 2017 16:54
AltaRed wrote: 09 Aug 2017 16:21 This is for the average investor, not a stock picker using a Dividend Aristocra approach.... which might be better, or not. I think most of us could do better but it is very difficult to bet against the S&P500.
You are completely missing the point that the article is about surviving on dividend income alone not total return.
Actually I did not. I am fully aware it is talking about dividend income alone. Your post said
no projected dividend growth in the simulation
which is not true. The author grows dividends in the simulations by exactly the same rate as capital appreciation grows (has to if the 1.9% yield is kept constant in the simulation). It is just that dividend growth does not exceed capital growth.

I am fully aware the numbers in the charts are dividends only. Using the yield from SPY is entirely appropriate for a Couch Potato portfolio for a US citizen/resident, although there are other ETFs with a higher dividend yield available to investors with a focus on dividends as income in retirement.

Perhaps the average American is not as focused on yield as Canadians are. Dividend investors here seem to expect 3-3.5% yield from their equity investments. Indeed, VCN, as an example has a 2.4% yield and more perversely, XDV is over 4%. But why is that? Is it mostly, or partially because the TSX Composite has trailed S&P500 performance? Think about it. If the TSX was at 20,000 rather than 15,000, VCN yield would be only 1.8%.
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Re: Clippings 2017

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This article is useless to any serious investor.
Ahh maybe that's why I found it interesting. May be things wrong with the article but the 10% savings rate for 35 years and using VYM equates to a 51% income replacement not a bad target especially if that's on top of CPP & OAS.
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Re: Clippings 2017

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It is not unreasonable to use SPY as the proxy for an American's equity component. It is the 'go to' ETF for almost everyone, including insititutional accounts. I used SPY for the longest time in my USD account and then took advantage* of tax loss selling in 2008/2009 to crystyallize the loss and swap into VTI where I continue to stay....forever. The author even did an alternative at time of retirement by switching into a higher yielding ETF VYM to deliver more dividend income.

What is not real about the analysis is that few US retirees at that level of income can realistically hope to simply live off dividend income. Most will have to be in a 4% SWR or similar situation, i.e. drawing on capital. Absolutely nothing wrong with that. Perhaps those making a lot more money than what the author assumes in this case can put away 30-40% of income into this plan without missing a beat and THAT would have a significantly better result. Double the income and boost the savings rate and voila, quite a different answer after 30 years in absolute terms.

* When I returned from the US in 2006, I was able to do an ACB reset on my portfolio holdings. So my new ACB for SPY was quite high. It allowed me to take a significant 'tax loss' in late 2008. Call me lucky. Had that not happened, I would still be holding SPY.
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Re: Clippings 2017

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"Final Thoughts

This article showed the impressive power of dividend growth stocks for long-term wealth creation."


I found the article confusing. What's using Vanguard High Dividend Yield ETF in place of SPY got to do with dividend growth? Was that the best ETF example the author of the article could find?

------------------------------------------------------

....and yes you can retire on dividends, well sort of. Ross Grant using mostly the BTSX strategy, started investing at the age of 22 and then retired at 43. He and his wife quit their full time jobs and retired at an early age, but then again the last I heard a few years ago was that they still work contracts. He says they really don't need the extra money.

-------------------------------------------------------

The problem with just about any dividend study I've read over the last few years, is that they never account for taxes in a non-registered account, nor costs or inflation. Not including those and yes, high dividend yield strategies quite often beat their respective indexes over the long term, in the U.S., Canada and the UK. Ironically enough from an old 2010 internet article I read, high yield strategies don't work in Australia.
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Re: Clippings 2017

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VYM itself doesn't have anything to do with dividend growth. The author assumes dividend growth of SPY matches capital appreciation of SPY (yield held constant). Unless I am in error, all the author did with VYM was to show that, all other things being equal, swapping out all the dollars invested in SPY at retirement would boost the retiree's dividend income from a yield of 1.9% to about 3%.

IOW, if one argues SPY is a poor choice upon retirement, then switch the capital upon retirement to a higher yielding ETF and boost actual dividend distributions. The concept is really pretty simple, notwithstanding problems with cap gains taxes on SPY disposition in non-reg accounts.

Yes, one can retire on dividends IF one is a stock picker and/or can invest enough capital along the way. But the average American earning $70k/yr without the ability/skill to invest in anything but a broad market ETF, likely cannot get there. You guys are reading too much into a rather simplified 'illustrative' analysis.
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Re: Clippings 2017

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I don't know where the stock picking skills come in to invest in the 10 highest yielders or in other studies I've read, either from the top 15 or 20% of the DJIA, the S&P 500, the TSX 60 or the FTSE 100. Pretty mechanical.
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Re: Clippings 2017

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Final Thoughts This article showed the impressive power of dividend growth stocks for long-term wealth creation.
With that said, the best case scenario is to retire on dividends alone. This article showed that this is a distinct possibility using a long-term dividend growth investing strategy.
I missed both these being shown by this article, my impression from this article is don't try this at home cause your savings rate needs to be much too high to accomplish a dividends alone strategy, a miniscule amount of people could actually do this. I think a dividends alone strategy is a bad idea anyway but any serious investor would know that.
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Re: Clippings 2017

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BRIAN5000 wrote: 10 Aug 2017 18:59 I missed both these being shown by this article, my impression from this article is don't try this at home cause your savings rate needs to be much too high to accomplish a dividends alone strategy, a miniscule amount of people could actually do this. I think a dividends alone strategy is a bad idea anyway but any serious investor would know that.
Not easy for the average middle class investor to acheive this, if for no other reason than the average investor is not a dividend growth investor. A dividend income alone strategy is a highly concentrated strategy leaving little room for error but it is entirely possible and obviously some FWF members do it and even feel comfortable with it.

Whether these same investors have experienced a bad bear market where a number of dividend distributions get cut, I really don't know. We have been in a long term bull market for dividend stocks on a total market basis, but some sectors have had brutal performance.Think of US financials in late 2008, or our O&G stocks in 2015/2016. Who knows what the future brings. Just maybe our interest sensitive stocks going forward if interest rates continue to advance.
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Re: Clippings 2017

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Here's a Globeinvestor article about a Canadian woman who has been retired since being laid off in 1999 with a portfolio of mostly dividend growth stocks.
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Re: Clippings 2017

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We have some of our own FWF members who do a similar thing. About two thirds of my annual cash flow income now comes from dividends (Cdn and US) and continues to slowly grow as a percentage (my DBPP is not indexed).
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Re: Clippings 2017

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Living on dividends requires retiring later in order to accumulate a portfolio that throws enough dividends. It also leads to die as the richest person in the graveyard.

It's a plan that can work, but it's definitely not for me.
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Re: Clippings 2017

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Taggart wrote: 10 Aug 2017 19:22 Here's a Globeinvestor article about a Canadian woman who has been retired since being laid off in 1999 with a portfolio of mostly dividend growth stocks.
Did a quick look at one of her spreadsheets, looks outdated, she owns @ 50 TSX stocks no US stocks (?), wonder how she compares to XIU?

http://www.spbrunner.com/stocks/dividendincome.htm
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Re: Clippings 2017

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BRIAN5000 wrote: 10 Aug 2017 20:07
Taggart wrote: 10 Aug 2017 19:22 Here's a Globeinvestor article about a Canadian woman who has been retired since being laid off in 1999 with a portfolio of mostly dividend growth stocks.
Did a quick look at one of her spreadsheets, looks outdated, she owns @ 50 TSX stocks no US stocks (?), wonder how she compares to XIU?
http://www.spbrunner.com/stocks/dividendincome.htm
I've read her website for years. I like her individual stock analysis (while 99% of the time doing nothing with the information). She has a complicated network of mini-websites but she is the real deal. Her analysis site is usually the most up to date one:

https://spbrunner.blogspot.ca/
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