$192,000 ETF Report Update

As some of you know I have constructed a $192,000 ETF portfolio for my mother in law Grandma Olga. Original Link HERE

Here is a dividend report since original inception of June 25

A recap of the particulars

The Allocation: 

Fixed Income: 46%

• Bonds 34% : Investment grade corporate 1-5 year laddered Fund
• Preferred Shares 12% : Canada and American high quality holdings Fund

Equity Income 54%

• Reits 12% : Canadian Income Real Estate Investment Trusts Fund
• Canada 12.5% : High dividend paying stock fund
• American 12.5% : High dividend paying stock fund
• Covered Calls 7.5% : Covered calls of select North American stock fund
• World 12% : High yielding mainly Europe/Asia Fund

    Total portfolio original value $192,000



Now the list of the individual funds!

Bonds

• CBO - iShares 1-5 year laddered corporate bond.            .28% Mer     4.18% Yield
• ZCS - BMO Short Corp Bond Index                                .34% Mer     3.16% Yield

Preferred Shares

• XPF - iShares Preferred Stock North America                  .47% Mer      5.21% Yield

REITs

• XRE - iShares S/P TSX Cap Reit                                       .60% Mer      4.96% Yield

Canada Equity

• XEI - iShares Equity Income                                               .61% Mer      4.21% Yield
• ZWU - BMO Covered Call Utilities                                   .71% Mer      5.60% Yield
• ZWB - BMO Covered Call Financials                                .74% Mer      4.80% Yield

America and World Equites

• ZWH - BMO US High Div Covered Calls                           .65% Mer     6.07% Yield
• XHD - iShares US High Div Index                                      .33% Mer     2.62% Yield
• CYH - iShares Global Monthly Dividend Index                  .34% Mer     3.59% Yield
• VEF - Vanguard Developed excluding NA                          .34% Mer     3.50% Yield

This selected portfolio is currently yielding 4.11% 
or about $7,891 a year or $657 a month average






Now an update of the payouts and thoughts

July               $451.96
August          $610.00
September     $610.00
October         $217.12


They are a little bit lower than I had anticipated. All but one of the funds are monthly payers so $610 will be the lowest total going forward I would hope which depends on payouts remaining the same.

Revised forward dividends are $7500 for the year or $625 a month (3.9% yield)

And now even more bad news

The portfolio holdings of $192,000 is down 2.16% to $187,849 due to markets taking a severe dip.


In Conclusion

Not the best update with lower than anticipated payout and the portfolio taking a hit but it could be worse. No panic here as its is a long term hold. Nobody can time the markets efficiently and history shows always better to be in than out. We will stand not making any moves until possibly next year where we will analyze a couple things. We will more than likely switch from the reit fund etf into individual reit holdings if the Mers do not go down on that fund. 4% yield is what I am after and will adjust accordingly to make it happen.


Other News

Markets taking a good sized dip wiping out my gains. Net worth report coming in a few days and its looking pretty red!!!! Ouchy!!!

I just constructed a $192,000 ETF income producting ETF portfolio for Grandma Olga

                                                  Operation Grandma Olga

Grandma Olga is a new retiree that just hit 60. Her expense run around $2000 a month. She recently had $204,000 in the bank. Her municipal pension comes in at $700 a month and at age 65 her government pension will kick in for a total pension and benefits of about $1300 a month.
My original introduction post of Grandma Olga
This post is about me constucting an all ETF income producing portfolio for my mother In-law which I call Grandma Olga. After sending her to two financial advisers and giving her many options on what she could do with her retirement nest egg she wanted me to construct her an income generating portfolio. Its been a learning process as I have put in countless hours number crunching, researching and learning the ins and outs of creating a globally balanced, income producing, bond/equity balanced portfolio. This has been a tremendous burden on me in terms of time and stress. I am not compensated for this other than some bartered baby sitting work. In this process it has given me more perspective upon my own portfolio and goals.

I am no finance professional and I don't claim to be. Do I think I can beat the market? NO! Can I do better than a financial adviser charging 1% of assets and as well directing towards funds with 1-2% Fees? Maybe! What I can do is make an individual income specific portfolio that should keep up with the market.

So finally after endless meeting with Grandma Olga we have come to a decision. She wanted to originally gamble her chances by going with a 100% equity portfolio. But after carefully consideration and advice by me we are going into a more conservative but still aggressive approach to suit her needs.

She worries she will die broke and penniless upon her death and we are working hard to prevent such a thing.

The Plan:
  A sustainable portfolio she can draw upon via dividends and interest with hopefully never cashing out her initial investment. With this said we are going an all ETF route that provides us ease of manageability (especially for me) and a vast amount of products in different categories ( ie. bonds , preferred shares and common broad equities) . We are aiming for a primarily monthly payout paying portfolio that will yield over the average of 4% with slight capital appreciation per year.  Re-balancing will probably take place twice a year.

At 4% many consider this the max you can pull out of your retirement savings without touching your main principal. We are trying to replicate that as well as some gains in capital appreciation by adding on some higher risk holdings.

The Allocation: 

Fixed Income: 46%

• Bonds 34% : Investment grade corporate 1-5 year laddered Fund
• Preferred Shares 12% : Canada and American high quality holdings Fund

Equity Income 54%

• Reits 12% : Canadian Income Real Estate Investment Trusts Fund
• Canada 12.5% : High dividend paying stock fund
• American 12.5% : High dividend paying stock fund
• Covered Calls 7.5% : Covered calls of select North American stock fund
• World 12% : High yielding mainly Europe/Asia Fund

    Total portfolio value $192,000

    Total cash in savings and checking account $12,000

Thoughts on allocation:

In this allocation we have relative safety in the fixed income portion being close to 50% and chance for some capital appreciation in the equity portion. Preferred shares are considered fixed income due to there limited share price fluctuations and higher set dividend rates. Many also consider Reits a hybrid between fixed income and equity with their high steady dividend payouts so in essence one could say this portfolio is high as 58% fixed income. To get the higher yield we wanted we stuck with investment grade Canadian corporations where there main holdings are rock solid Canadian Financials like TD Bank and Royal Bank. To hedge against rising interest rates we stuck to short term 1-5 year laddered bonds to weather any potential but incoming interest rate storm.

For the Equity income portion we went after a globally diversified portfolio that provided mainly of dividend appreciating and high dividend funds. To further extend our income we went with a few covered call funds. Most would say leveraged funds are quite risky but the covered call limits your downside as well as upside but you generate higher income from writing the options plus the dividends obtained.

We have opted to put $12,000 aside for cash on hand to pay for whatever difference their will between pensions,dividends on monthly expenses. At $2000 a month expenses and projected pension and dividends/interest coming in of around $1350 total there will be a $650 a month shortfall in which she will use her cash account for. If she uses the full $650 per month subsidy from her $12,000 cash the amount will last her 18 months. I am hoping she further cuts her expenses by $200 which she can easily do a month so that cash will last her 26 months. At the point when she depletes her cash we can hopefully cash in on some of the capital appreciation of her portfolio. She also has an ongoing insurance claim which will more than likely provide her with a windfall in the coming years. I will analyze this cash amount every year and adjust her portfolio to have at least a years expenses cash on hand fund.


Now the list of the individual funds!

Bonds

• CBO - iShares 1-5 year laddered corporate bond.            .28% Mer     4.18% Yield
• ZCS - BMO Short Corp Bond Index                                .34% Mer     3.16% Yield

Preferred Shares

• XPF - iShares Preferred Stock North America                  .47% Mer      5.21% Yield

REITs

• XRE - iShares S/P TSX Cap Reit                                       .60% Mer      4.96% Yield

Canada Equity

• XEI - iShares Equity Income                                               .61% Mer      4.21% Yield
• ZWU - BMO Covered Call Utilities                                   .71% Mer      5.60% Yield
• ZWB - BMO Covered Call Financials                                .74% Mer      4.80% Yield

America and World Equites

• ZWH - BMO US High Div Covered Calls                           .65% Mer     6.07% Yield
• XHD - iShares US High Div Index                                      .33% Mer     2.62% Yield
• CYH - iShares Global Monthly Dividend Index                  .34% Mer     3.59% Yield
• VEF - Vanguard Developed excluding NA                          .34% Mer     3.50% Yield

This selected portfolio is currently yielding 4.11% 
or about $7,891 a year or $657 a month average

With a 4.11% yield we are in range of her goals of 4% with a little bit of wiggle room. Even if interest rates hit hard and the market has a downturn we still will have a decent yield over 3% which is more than current offered cash deposit GICS where there 5 year rates are between 2-3%.


Selection Notes

Mers - In Canada our Management Expense Ratios (Mers) are higher than the US. Vanguard has recently come to Canada and with their lower rates it has made the market more competitive. Since then BMO and iShares have stepped up their game to offer lower Mers on select funds. Hopefully this competition will trickle down to my income fund selections. in the future.

Monthly payers - All but one of these funds pay out every month where the Vanguard offering pays quarterly. This will provide a steady income stream to Grandma Olga.

Canadian Hedged- Most of the chosen funds are Canadian hedged so currency fluctuations will not affect the holdings.

Canadian Picks - We went with all Canadian based ETF,s for ease of use for Grandma Olga. All the funds have Canadian dollar payouts so it will be easy to transfer dividends into her checking acount without the worry of currency exchange. If this were my own portfolio I would definitely be more geared toward US listed ETFs in the American and world markets as selection and lower Mers are vastly improved.

Fund selections - I am primarily with Blackrock iShares because of their vast selection as they own 80% of the Canadian ETF market. Vanguard a new addition in Canada is rapidly gaining market share but does not offer many monthly payers and their overall initial selection is very limited. Once they add more funds I may swap some of my current selections out with theirs. In many cases BMO funds could be interchangeable as they were neck in neck with iShares in many categories as well.

First Asset ETFs deserve honorable mention as they have many interesting niche high income products. The problem with them is that their funds have a embarrassing total assets which will no doubt affect the liquidity which is concerning. They are worth a look once they get more money in their funds. I had a struggle picking good paying International high income funds and it is a category that needs definite improvement. I went back and forth with a couple Vanguard offerings but they had lower yields and also payed quarterly.

Going Forward-
 I plan to make a monthly post updating Olgas portfolio performance with interest and dividends received, her monthly expenses , Net worth and any other important updates. Hopefully others can gain some perspective on Grandmas Olgas situation and take away something into their own portfolio or their loved ones.

I am also encouraging Grandma Olga to learn more about investing so in the future one day she can manage her own portfolio.



Other Notes. I have joined the Yakezie challenge at http://yakezie.com/

Good Day and Grind On Everybody!

Constructing a monthly income $200k ETF portfolio for a new retiree

                                                        Plan Grandma Olga

So I have been given the task of investing my mother in laws money. She is 60 years old single and ready to mingle. She likes romance novels, wine and a bit of dancing.For now we will call her Grandma Olga . She has recently sold her townhouse and has $205,000 sitting in the bank. She is very worried the money will not last and she will be broke and penniless before she dies. She is unable to work due to a couple medical conditions and she has a long running claim with an insurance company in which she feels she will receive a payout but unsure of its size within the next couple years. She has a municipal pension in which she just applied for that will pay her $700 a month until age 65 and at 65 it drops to $500 a month. She can apply for early government pension that would pay her $365 a month now or she can wait until 65 to receive a higher payments of around $515 a month. Also at age 65 will receive old age pension at around $500 a month.

So right now she thinks she needs about $2000 a month to survive.

Her Expenses per month

- $950 a month rent with utilities included- She is renting an apartment close to us which is alright, nothing fancy but not run down, About 750 sqft in a nice area but decent building. I told her it would be best to get a cheaper place but not much available under that. She could get a 2 bedroom place for $1300 and get a room mate to split the costs but she hates living with others.

- $400 Bills - Medical, Car Insurance, Gas, Phone, Cable , Internet, Gym. She could trim a few things down here by a bit but mostly they are pretty fixed costs

- $400 Food - I am just estimating here. $100 a week. This would include eating out twice a week and a couple of coffees. This number could be as low as $300 I think as she doesn't seem to shop or eat much.

- $250 Entertainment, gifts and clothes. This number will fluctuate as certain holidays spending will be increased. She does not go out and spend much money but she likes to shop for her grandkids. She is pretty frugal in these regards. I expect spending will fall in the range of $150 towards $350 a month so $250 is a safe bet overall


$2000 Total
- Overall its not bad but I feel she could trim that number down especially if she lived in cheaper housing which is a stubborn topic for her. The rest of her costs I think she could trim $100-200 from pretty easily taking her down to about 1800-1900. Also she helps babysit for us one night a week for date night. With that I pay some of her bills for her. So I cover her about 100-200$ a month effectively bringing her total down towards the 1800-1900 level


Grandma Olga age 60 Income right now

$700 a month- municipal pension
$170 a month - from interest of $205,000 sitting in a high interest savings account at 1%
$870 Total

When she reaches 65

500$ municipal pension which drops from 700
513$ fedreal goverment pension
$500 old age security
1513 Total a month

So whats a woman to do?
Have her $205,000 sit in cash deposit gics in the bank earning what max 2.5%? That would net her $5125 a year or about 427 a month. Certainly this would be the safest route but her nest egg will slowly evaporate as she would require more capital to get by till she reaches 65. In theory she would lose close to $60,000 in that 5 year term leading up to 65. That a big chunk!

She said she is willing to take on more risk as she knows fixed cash deposit gic,s will not yield her the return she needs.

That is where I come in. First off I find this a very daunting task. I take it very seriously and even more serious than my finances.  I have sent her to two financial advisers and they did not come up with very good plans for her. One of course was pushing their company funds on her with high fees and the other one she did not trust him as he came across a salesman. I am worried if I send her to a fee based adviser that their 1% a year asset managing would gobble up her returns and she would have to take on unnecessary risk to offset the fee.

The Plan
I am no financial planner or wizard by any means which I made clear to her and yet she has faith in me. I am thinking of a plan that can get her dividend returns of a bout 4-5% a year without depreciated her nest egg. At 4.5% annual return that would provid her with $8775 return a year or $731 monthly if we were to invest 195k with about 10k in cash reserves. That way she would have about $731 from dividends and $700 from her pension for a total of $1400 a month and then she can draw from her 10k cash cushion to make up the difference in her monthly expenses. I like this method cause it will force her to conserve her cash cushion and hopefully she will cut down her monthly expenses in those regards. If she were to use the full cash cushion of $10,000 to cover the extra $600 in monthly expenses she would deplete the total in 16 months. At that point she would have to start pulling equity out of her holdings.



Portfolio Holdings Plan
So I have been racking my brain trying to come up with a safe plan for her where she can receive monthly income with a rate above 4% and enjoy some mild growth. Initially I picked out a long list of stocks to achieve this plan but over the course of a couple of weeks I am thinking of going towards the ETF route instead. This ETF plan affords me with some breathing room in management of the portfolio and it fits my goals of asset allocation.

- ETFs benefits
   * Allows me to capture much more of the markets without making an extreme number of individual trades so its cost effective
   * It allows me some breathing room as I dont have to personally have to manage its holdings
   * It allows me to capture American and International stocks hedged to Canadian dollars so we don't have to worry about currency converting transactions
   * It allows us more access to CAN and US preferred stock holdings with higher dividend payouts
   * Allows us access to great laddered bond funds diversifying single held bond risk
   * Low management fees, most of the ETFs I am looking at have their fees at .5% or lower


With that said I have chosen an ETF asset allocation mix of

 23% in Bonds - Mainly Canadian corporate investment grade bonds with yields over 4%

 - CBO - iShares 1-5 Year Laddered Corporate Bond Index ETF 
 - XHB - iShares Canadian HYBrid Corporate Bond Index ETF

23% in Preferred Stock- A mix of US and Canada preferred stock with yields above 5% 

 -XPF - iShares  S&P/TSX North American Preferred Stock Index ETF (CAD-Hedged)

36% in Stocks - A mix of Canadian and US stocks with a small international section with yields above 2.5% for US and International and 3.5% for Canadian.

 -XHD - iShares U.S. High Dividend Equity Index ETF (CAD-Hedged) 

 -XEI - iShares S&P/TSX Equity Income Index ETF 

 -CYH - iShares Global Monthly Dividend Index ETF (CAD-Hedged)

 16% in Reits - I am thinking good large Canadian Reits with good a good history of yield payouts over 5%. Since Canadian ETF Reits are not paying out over 5% I will skip ETF,s and get 5-6 individual Reit stocks.

- REI.UN   - RioCanREIT
- HR.UN    - H&R REIT
- DRG.UN - Dream Global REIT
- AX.UN    - Artis REIT
- CWT.UN - Calloway Reit

This allocation is not set in stone as I am constantly tinkering with it. With this plan I think it will generate solid predictable income as all the ETF,s and Reits I am looking at pay monthly. The funds I have currently selected payout avg 4.4% yield monthly. I do expect some mild capital growth from the Stock ETF,s

Right now I have chosen Ishare Etf,s as they have met most of my criteria however I am not partial to them. I have been investigating offerings from Vangaurd, BMO and TD ETF,s but so far I tend to like iShares in my early findings due to their yields. When I find a certain different company fund to replace any of my initial findings I will do so.

Once the plan goes forward I am thinking of tracking her progress and updates on this blog as well. What you guys think?

Taking on this challenge of managing someone else,s portfolio I find it a good learning experience as I had to figure out their goals, estimate their expenses and construct a plan for a long term sustainability. Personally I would stay away from ETF,s but they do have some great advantages. Take for example bonds as it is not easy to assemble a good yielding corporate ladder that has open offerings. Also Preferred shares are not easy to obtain as they are generally reserved for institutional buyers. Not to mention International stock offerings as many good quality dividend stocks are not available on the US and Canadian markets and you dont have to worry about currency conversions. I may even look into acquiring a couple international or emerging markets ETF,s to bolster my international holdings in the future.


Other News
As my parents health dwindle I will eventually have to handle their estate. Right now they have no will or plan which I have been strongly urging them to do over the last few years. They have a large unprotected net worth in the multiple millions range and its quite concerning. They want to leave everything to me and their grandkids but they cannot agree with each other on many of the key points. I am looking to try and get them to start a trust fund where I can be the executor. I would choose the investments and make sure their wishes are put into action but its a slow process with them as they are putting up great resistance. I personally don't expect anything from them from their will but I don't want their estate being squandered from predator unscrupulous extended family either. This of course could be many years down the road but it is time I start preparing for it.

Also my blog has officially reached a month old. In that time I have developed it from scratch and built up a few regular readers while amassing over 7000 page views. I don't know if that is good or not but I am happy with it. I never knew how much time goes into writing and maintaining a blog and I have a new found respect for bloggers for the time they dedicate. I anticipate updating my net worth this Friday or Saturday as I think mid month tally's are a good time as I will reserve end of months for monthly review and dividend totals.



So what you guys think of the Plan Olga?
Any good Canadian dollar ETF fund recommendations?
Will my mother in law survive?
Will she be able to sustain her nest egg with this plan?
Will she ever find a boyfriend?
Any suggestions on asset allocation for Olga?