TO SELL OR NOT?

Asset allocation, risk, diversification and rebalancing. Pros/cons of hiring a financial advisor.

Postby deaddog » 20 Nov 2008 13:27

like_to_retire wrote: No, I'm not ever going to pay taxes on it. It's a hold forever while I spend the dividend.

Sounds like the fear of looking dumb is greater than the pain of taking a loss at this point.

Man, you really missed the point...... :roll:

ltr


Hey I'm really good at that, missing the point that is.

Playing devils advocate; what happens if they cut the dividend?

Being a trader/market timer I capitulated in sept. Paid the taxes and made several times the annual dividend. If and when the market decides to recover and I'm sure it will, I'll get back in. In the meantime if any of the companies I used to own gets into trouble I'm not at risk.
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Postby AltaRed » 20 Nov 2008 13:34

Clock Watcher wrote:
AltaRed wrote:Need to be careful with that comparison. Mylund simply stated one data point (one of the RSPs), not the whole portfolio. One is highly unlikely to be down 40% overall with a balanced porfolio


I cannot accept that argument, probably because of the way I work. One of my projector leaders cannot tell me that his project has bombed but I shouldn't worry because the other projects seem to be doing well. Each component must pull their own weight (stocks, bonds, cash, commodites, etc.).


What part of this do you not understand? A successful investor has an asset allocation that aligns with his/her risk tolerance, and employs diversification and re-balancing strategies over the long term to 'adjust' for the losers and winners in the portfolio. Each component pulls its own weight over the longer term. It is classic investment strategy.

Where one can go wrong (despite doing all of the above) is to reach for yield/growth, i.e. fill the portfolio with high growth (momentum) stocks, value traps, marginal investment (or junk) grade bonds, etc. Few, if any, professionals can beat the market longer term. Why should amateurs think they can do so? Answer: Go couch potato.
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Postby like_to_retire » 20 Nov 2008 13:40

what happens if they cut the dividend?

XIC is an ETF that represents about 250 stocks. I doubt they'll all cut their distribution.

XIC only represents a portion of my portfolio. My allocation is over 70% fixed income. I'm not fussed if XIC lowered its dividend a bit. That's why I diversify.

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Postby Bylo Selhi » 20 Nov 2008 13:44

deaddog wrote:Why the fear of taxes? Are you not going to pay taxes eventually?
"Eventually" could be decades from today. In the meantime I get a tax-free investment loan on the taxes that I will "eventually" owe.

The higher the stock goes the more you pay in taxes.
Again, eventually, not now.

Consider someone like l_t_r who holds $100k in XIU that was worth $235k at the peak. CG taxes on $135k, even at 25% MTR, would be almost $34k. That's more than some people live on and could easily bump others into OAS clawbacks, etc. So why prepay that tax?

The best time to pay tax is when you no longer need the money — like when you're dead ;)
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Postby deaddog » 20 Nov 2008 13:50

like_to_retire wrote:
what happens if they cut the dividend?

XIC is an ETF that represents about 250 stocks. I doubt they'll all cut their distribution.

XIC only represents a portion of my portfolio. My allocation is over 70% fixed income. I'm not fussed if XIC lowered its dividend a bit. That's why I diversify.

ltr


If they do cut the dividend ,even by a little bit will this not cause the stock price to drop?

Double trouble. You have less income and less value in the stock.

Are you managing your portfolio to maintain a 70/30 split? Are you selling fixed income to buy equities?
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Postby deaddog » 20 Nov 2008 13:53

Bylo Selhi wrote:
The best time to pay tax is when you no longer need the money — like when you're dead ;)


My long term plan is to die broke. The last cheque I write will be to the undertaker and with any luck it will bounce. :twisted:
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Postby BRIAN5000 » 20 Nov 2008 14:03

investor99 wrote:
BRIAN5000 wrote:
investor99 wrote:
someone who is within months of retiring and has recently lost >40% of their nest egg.


Is this possible with a properly diversified portfolio designed primarily for capital stability seeing how one is within months of retirement?


Help me out here a little please "investor99" in general.

I'm 52 would like to retire soon, Dec 31 2008 would be fine but could continue working till derc 31 2009 or beyond. How should I stucture my portfolio.

Yes capital preservation is important, having enough to live on and leaving a large amount for daughter is important.

So really how long is my time frame is it 6 weeks, 1 year or 33 years (85)

What is a reasonable asset allocation ? Lets start with 2 million to play with.


I'm not a financial advisor but I know for certain that your time frame is nowhere near 33 years.


Well I'm not a financial advisor either but we can still discuss things.
Was it a question you asked

Is this possible with a properly diversified portfolio designed primarily for capital stability seeing how one is within months of retirement?


or was it a statement ?

I would like to know, off the top of your head, how you would design a portfolio for "capital stability".

For example 50/50 IF/EQ with the 50% in equities spread between a diverse array of dividend growth stocks? Would this be an overly aggressive portfolio tor someone wanting income etc. over 30 years?

In this case your down 40% or $400,000.00 on a 2mil port.?
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Postby Bylo Selhi » 20 Nov 2008 14:05

deaddog wrote:My long term plan is to die broke.
Good luck with that. What happens if your portfolio expires before you do? Why should I and the rest of Canada's taxpayers pay for your inability to plan properly?

The last cheque I write will be to the undertaker and with any luck it will bounce. :twisted:
And why should you plan to cheat the undertaker out of their fee? What have they done to deserve that?
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Postby like_to_retire » 20 Nov 2008 14:13

If they do cut the dividend ,even by a little bit will this not cause the stock price to drop? Double trouble. You have less income and less value in the stock.

No, as I said, XIC is an ETF. It represents the dividends of all the stocks in the index. People expect it to go up and down every quarter, and it does. It's price is anchored to the NAV....

Are you managing your portfolio to maintain a 70/30 split? Are you selling fixed income to buy equities?

Well, normally I would with cash that gets thrown off, but this pull back has prompted me to eventually change my allocation a bit to reflect the rather disturbing revelation that preferreds (even retractables) can act exactly like equities in really bad times..

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Postby deaddog » 20 Nov 2008 14:18

Bylo Selhi wrote:
deaddog wrote:My long term plan is to die broke.
Good luck with that. What happens if your portfolio expires before you do? Why should I and the rest of Canada's taxpayers pay for your inability to plan properly?

The last cheque I write will be to the undertaker and with any luck it will bounce. :twisted:
And why should you plan to cheat the undertaker out of their fee? What have they done to deserve that?


Hey I'm sticking to my plan. Not buy and hope but proctecting my capital.

I'm not expecting you guys to pay my way while you're alive. But all the taxes you're going to pay when you die will probably help. :lol:

Nothing really anything against undertakers, actually I've prepaid that part of my demise. Just an attempt at humor.
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Postby AltaRed » 20 Nov 2008 14:24

BRIAN5000 wrote:I would like to know, off the top of your head, how you would design a portfolio for "capital stability".

For example 50/50 IF/EQ with the 50% in equities spread between a diverse array of dividend growth stocks? Would this be an overly aggressive portfolio tor someone wanting income etc. over 30 years?

In this case your down 40% or $400,000.00 on a 2mil port.?


An asset allocation is not static for most investors. Remember the 'rule of thumb' which is '100 less age equals equity component'? That allows for increasing conservatism as the portfolio is drawn down and one ages. OTOH, if you have rich enough($2 million) to not to have to touch capital, then maintaining 50/50 throughout retired life may be a viable option.

The key to success is to re-balance annually to maintain the allocation, and yes, that means this January, one would normally sell some FI to replenish the equity side. The other method is to simply leave the equity component alone and draw down the FI component for living needs.

EQ component has XIU/XIN/XSP in it, FI component has XBB/GIC/XSB in it. IF you prefer to have more dividend income than growth in the equity component, then buy XDV/VTV/VGK. If you buy your own stocks, then yes, I would substitute dividend paying blue chips (and no one stock is more than 5% of the portfolio).

Being $400k down at this point should not be an issue, or else one should not have been in a 50/50 allocation. 5 years from now, that person should have totally forgotten about being $400k down (on paper) in 2008.
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Postby deaddog » 20 Nov 2008 14:32

AltaRed wrote: 5 years from now, that person should have totally forgotten about being $400k down (on paper) in 2008.


Any reason for this optimism. Why won't we be like Japan.
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Postby BRIAN5000 » 20 Nov 2008 14:36

Good post, AltaRed

My point was someone 50-52 wanting to retire soon has taken a maybe a medium risk asset allocation strategy 100-(50-52) = @ 50% EQ because they expect on living to 80 - 85 and gotten smoked in this market. Being down $400,000 is an issue at any time. Its frightening to say the least. As a general statement you just lost 8 years of income at $50,000 a year.
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Postby BRIAN5000 » 20 Nov 2008 14:46

This could be simply and issue of greed. Wanting $50,000 a year to live off and leave something for the daughter.

With 2 mil 50/50 may hvae been overly aggressive and maybe 75/25 would have been a better allocation.

Or ' this time is different" and this person got unlucky with having a correction of more then 20% in his retirement time frame.
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Postby couponstrip » 20 Nov 2008 14:46

We all seem to be a little chippy on the old friendly FWF today :) . Apart from deaddog and mw who are fortunate to have removed their capital from the mix several months ago, we are all hurting in this bear. It might be worth going back to our IPS's/reasons for our investment decisions and review the details. Chances are, all the decisions that were made are sound, and there is nothing to really regret. For example, buying MFC when it dipped down to a shocking $42 was a perfectly reasonable investment with the information available at the time. Just because the information has changed drastically since then resulting in a share price of $18 doesn't necessarily mean a mistake was made. The information just changed. It is easy to question your investment approach and decisions at this point because they all look pretty bad if you use share price as your outcome measure. Diversification and patience are needed at this point.

If the idea of diversification is an equity portfolio filled with both Canadian banks ("the most stable banks in the world" :shock: ), and Canadian insurance companies, then I do pray for you because I don't think that this next round of earnings announcements is going to be pretty.
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Postby Studebaker Hawk » 20 Nov 2008 15:33

Bylo Selhi wrote:I get a tax-free investment loan on the taxes that I will "eventually" owe.


How is it a loan? You can't use it for anything.
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Postby OptsyEagle » 20 Nov 2008 15:43

Obviously, if one has any allocation to equities, when the stock markets go down in the neighborhood of 50%, they are going to experience negative returns. They will not have this so called capital stability.

Now, if one tries to build a portfolio that can beat inflation, reduce their taxes and provide a real rate of return without using equities, they are going to have extreme difficultly.

So take your pick.

As for me. I have just noticed that the S&P 500 has just broke though its low it made on October 9, 2002 making the start of this bear market March of 2000 and not October of 2007. That is what I call one nasty bear and it is as good of reason for me to start drinking as I can find (as if I needed to find one).

So good luck to you all and remember, 100 years from now, we will all be dead and poor alike.
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Postby BRIAN5000 » 20 Nov 2008 16:11

Studebaker Hawk wrote:
Bylo Selhi wrote:I get a tax-free investment loan on the taxes that I will "eventually" owe.


How is it a loan? You can't use it for anything.


And I would like to extend this loan as long as possible and avoid probate fee's and CG when I die. When the wife dies the kid has to come up with the tax's out of the estate.
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Postby Bylo Selhi » 20 Nov 2008 16:52

Studebaker Hawk wrote:How is it a loan? You can't use it for anything.

Say you have a stock position today with FMV of $2k and ACB of $1k. If you sell today you'd owe tax on the CG, say $250. If instead you continue to hold the stock, that $250 remains to compound as (hopefully) the stock appreciates in value until you finally sell it.
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Postby mpav » 20 Nov 2008 16:57

Scanman wrote:mpav wrote
GIC's are fixed income are my number one performer! If you are using a discount brokerage and don't have large sums, the GIC rates are usually much better than the bond rates they give you.


I use TD discount brockerage and I don't see any option to purchase them thru that account????

Did I miss something?


Many discount brokerages don't sell 3rd party GIC's, TD is likely one of them. RBC Direct Investing does, it lists dozens of issuers...from Manulife Bank, to TD, to State Bank of India. Yesterday the top 1 year GIC was from Manulife Bank at 4%
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Postby Bylo Selhi » 20 Nov 2008 17:03

mpav wrote:
Scanman wrote:I use TD discount brockerage and I don't see any option to purchase them thru that account????

Did I miss something?
Many discount brokerages don't sell 3rd party GIC's, TD is likely one of them.

TDW offers a variety of GICs, both from TD Bank and from 3rd parties. They're not included in WebBroker's online fixed income system so you have to phone TDW and ask the agent for current offerings.
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Postby BRIAN5000 » 20 Nov 2008 17:08

mpav wrote:
Scanman wrote:mpav wrote
GIC's are fixed income are my number one performer! If you are using a discount brokerage and don't have large sums, the GIC rates are usually much better than the bond rates they give you.


I use TD discount brockerage and I don't see any option to purchase them thru that account????

Did I miss something?


Many discount brokerages don't sell 3rd party GIC's, TD is likely one of them. RBC Direct Investing does, it lists dozens of issuers...from Manulife Bank, to TD, to State Bank of India. Yesterday the top 1 year GIC was from Manulife Bank at 4%



You can clearly see these listed online?
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Postby mpav » 20 Nov 2008 17:20

Yup, you can set your criteria, sort etc. Here is the list of the first few of 1 years today sorted by yield (hope it formats properly):

Description Maturity Date Interest Rate

MANULIFE BANK
21 Nov 2009 4% Buy
KOREA EXCHANGE BANK
21 Nov 2009 3.9% Buy
HOME TRUST COMPANY
21 Nov 2009 3.85% Buy
AGF TRUST
21 Nov 2009 3.81% Buy
CDN WESTERN BANK
21 Nov 2009 3.81% Buy
CANADIAN TIRE BANK
21 Nov 2009 3.75% Buy
ICICI BANK
21 Nov 2009 3.75% Buy
STATE BANK OF INDIA
21 Nov 2009 3.7% Buy
EQUITABLE TRUST
21 Nov 2009 3.65% Buy
CITIZENS BANK
21 Nov 2009 3.5% Buy
BMO ADVISORS ADVAN.
21 Nov 2009 3% Buy
B2B TRUST
21 Nov 2009 3% Buy
LAURENTIAN BANK
21 Nov 2009 3% Buy
LBC TRUST
21 Nov 2009 3% Buy
PEOPLES TRUST
21 Nov 2009 3% Buy
PACIFIC & WESTERN
21 Nov 2009 2.86% Buy
ING BANK OF CANADA
21 Nov 2009 2.85% Buy
BANK OF NOVA SCOTIA
21 Nov 2009 2.8% Buy
HSBC BANK
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Postby BRIAN5000 » 20 Nov 2008 17:44

I may move to RBCDI and never move away, waiting for password to come in the mail now. Maybe today or friday.
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Postby AltaRed » 20 Nov 2008 18:02

BRIAN5000 wrote:My point was someone 50-52 wanting to retire soon has taken a maybe a medium risk asset allocation strategy 100-(50-52) = @ 50% EQ because they expect on living to 80 - 85 and gotten smoked in this market. Being down $400,000 is an issue at any time. Its frightening to say the least. As a general statement you just lost 8 years of income at $50,000 a year.


I understand. I am not in a dissimilar position except I am 59 and already retired 2 years with about a 70/30 EQ/FI allocation* before all hell broke loose. I have seen a 20% meltdown (probably closer to 25+% after this past week) in the paper value of my portfolio (I don't want to check), and that is about 8 years (or more) of expenses.

That is rather disconcerting to say the least, but I console myself that I do not have to sell any capital (especially equities) to meet basic living expenses for the next 5 years or so when I hope equities will have recovered (per the 2002-2008 period). If I have to tap into capital, it will be from my FI component. I hope I have the sense to tweak my allocation a bit more conservatively in ~5 years when I expect a recovery (will have aged 10 years in that 5 years in the meantime when I should become more conservative anyway).

*about 50/50 when I factor in my non-COLA'd DB pension.

Any reason for this optimism. Why won't we be like Japan.


I have no idea. Since I do not know, I will avoid aging 15 years in 5 years if I believe the glass is half full rather than half empty. The reason I can take that position is my FI component and dividend generation will hold me for at least 15 years (probably more unless inflation really goes out of control).

The point of all this is if one has a conservative asset allocation such as 50/50 during withdrawal period with a 4% or less withdrawal rate, one stands a much better chance of weathering the 5-20 year storm.
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