Subscribe: Spotify, Apple Podcasts, Google Podcasts
In the final installment of this series, we’re going to craft a simple but effective plan to make sure you always have enough money to enjoy your retirement.
How can I withdraw money? Which stocks should be sold? How many transactions per year? When should you wait before retiring?
On Thursday May 20ththI’m going to host a free webinar that will teach you how to optimize your portfolio for retirement and how to withdraw funds.
Click here now to register for the webinar
(Over 13,000 investors have seen my webinars. Secure your place!)
After this webinar you should be able to:
- Protect Your retirement capital
- Improve Portfolio return without increasing risk
- Create a safe and reliable income from your portfolio
Here are the full details:
- The webinar is on Thursday, May 20 at 1 p.m. ET.
- It’s 100% free with no strings attached.
- The presentation takes about 50 minutes.
- I’ll stay an hour to answer all of your questions.
- I will make the handouts available to all live attendees.
- A free repeat link will be sent to all registered participants.
Register now and watch the webinar as you wish.
Prepare your questions. This webinar is about 50 minutes and I’ll answer all of your questions about stocks, strategies, and the economy afterwards.
You will learn
- How to withdraw money without surviving your portfolio.
- How to prevent suffering from market events.
- What stocks should you sell if needed?
- How many transactions have to be done per year?
- Are Bonds or Fixed Income Products Good Options for Retirees?
- Summary in 3 steps to optimize your portfolio before retirement.
Here are a few points to keep in mind when looking at fixed income products.
Understand the strategy
Many companies will use a mix of option strategies to generate income. It is therefore important to understand what you are investing in. To do this, you need to read several pages of boring things. If you opt for the financial split (FTN.TO), you cannot stop at the company’s fund description: “… is a high quality portfolio that consists of 15 financial companies made up of Canadian and US issuers”. That sounds promising given a 13.5% yield, doesn’t it? Now let’s read a little further on pages 6 and 7 of the annual information form 2021:
“Up to 15% of the net asset value of the company may be invested in shares of issuers other than the portfolio companies. ”
And also: “To add to the dividends earned on the portfolio and to reduce risk, the company will from time to time write covered call options for all or part of the portfolio.”
And finally; “The company may also write cash-backed put options or buy call options to close out existing call options in the company and buy put options to protect the company from a fall in market prices for securities in the US portfolio . The Company may enter into transactions to close positions in such approved derivatives. The Company may also use derivatives for hedging purposes or otherwise as permitted by National Instrument 81-102 Investment Funds (“NI 81-102”). “
In short, after knowing that 15% of your money is invested in stocks and the rest is left to the “option strategists” to work their magic. How did that dividend work for investors? Same monthly distribution of $ 0.1257 / unit since 2008. Not bad? Oh! I also forgot to mention this FTN Skipped 33 monthly payments between September 2008 and March 2021 (source). If you rely on the monthly distribution to pay for the food, you have to eat strictly.
This specific product return is linked to the results of a complex (and ongoing) option strategy. It may or may not work in the future. What we see is that the product works well when the market is on the up but is in a difficult position when things get volatile. Based on my personal observations and a general feeling that is not backed by any study or scientific approach, these are not products your hard earned savings should be exposed to in the first place. However, also note that the fund skipped payments in 2009, 2011, 2012 (18 consecutive months) and 2020.
Understand the benchmark (are you leaving money on the table?)
While I understand the focus is on retirement income, let’s not forget about total return. Imagine if I told you that you could invest in the new High Income DSR fund? The HI-DSR fund would require a minimum investment of 100,000 and we will start with an 8% dividend yield. Over time, you find that while your 100,000 doesn’t generate an 8% return, it doesn’t stay in value. Your total return (capital gain + dividend) is still positive, but you won’t make that much money comparing it to a classic index ETF. How would you react? In my opinion, the money you get every month is just as important as the value of your portfolio. Therefore, the consideration of the total return must not be forgotten. Then you also have to compare apples to apples. Take, for example, the returns on the Canoe EIT Income Fund (EIT.UN.TO):
As you can see, I highlighted that Canoe outperformed the TSX index for most of the time periods. Considering that EIT offers over 10% returns and outperforms its benchmark, this seems like the perfect choice for any retiree, right? Think again! If you look at the EIT fund profile, you will find that it has a well-diversified portfolio that includes 41% of its money invested in US stocks:
When you factor in all of the investment options (index investments, dividend ETFs, high yield products, and DSR portfolios), you will see how much you have left on the table in the name of income stability.
Between October 31stst 2013 and April 12ththThe 100,000 DSR CAD portfolio (50% CAD, 50% USD) achieved a total return of 128.90% (versus 128.30% for SPY and XIU.TO averages) and the 100,000 DSR US portfolio (100 % USD) a total return of 186.93% (versus 170.8% for the SPY). EIT shows an honest performance with 115.9%, but the financial split 15 is far behind with 48.77%. Assuming that the EIT has spanned both the 2008 and 2020 crises since 2006, the fund is spot on in the Canadian market, but far from the SP 500 so far:
Overall, not all high income products are terrible. In fact, canoeing isn’t that bad of a product when you look at overall performance. Still, the price of an income product in your portfolio is very high when you consider how much you could have made from dividend growth investments or index investments. The next time you look at a high income product, consider the real price you will have to pay!