Wednesday 25 June 2014

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!

  • 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
  • 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

Good Day and Grind On Everybody!

Friday 20 June 2014

New Buy $AGU Agrium. Yeah you never heard of them!

Chart showing the development of AGU.TO

Market Cap$14.5BBeta1.87
Revenue (TTM)$16.9BEPS$6.90
Shares Out.144.0MBook Value$51.03
Dividend Yield3.23%P/E14.6x
Annual Dividend Rate$3.25Price/Sales (TTM)0.9
Ex-Div Date6/26/14P/Cash Flow (TTM)9.3x
Pay Date7/17/14Operating Margin9.31%

Yes , you probably never heard of them! Agrium Inc. is a global producer of nutrients for industrial and agricultural markets.Agrium is a Canadian based company and they are a global manufacturer of crop nutrients. Their many products include nitrogen and potash. This global fertilizer play is banking on world population increased growth and less arable land to farm thus driving the demand up for fertilizers. As long as their is a global demand for food Agrium will cash in. This is a long term play as the company is still volatile due to the global potash cartels price fixing. Overall the trend looks great. Agrium has rapidly expanded their potash operations and a just opened new production facility is in full swing. They are forecasting significant future growth in 2015 due to increased production.

The stock has returned 19% average over the last 10 years and the dividend is poised to increase as well. The dividend is currently yielding 3.23% and over the last 4 years they have ramped the dividend rate 86% avg per year. Current payout ratio is 48% and they expect to grow the dividend even more via increased earnings and increasing the payout ratio in the future. S&P Quality ranking for this stock is rated a B and their fair market valuation has the stock rated as undervalued by 10%

Investing in Agrium right now may not be wise due to volatility in fertilizer prices due to cartel price fixing and new cheaper producers coming out in emerging markets. Agrium has a worldwide market reach that could keep the competitors at bay for now. Agrium would not be for defensive dividend investors as its dividend is not have a long track record and it could sharply freeze or decrease from its rocket ship trajectory. Agrium however has great growth potential which could make it a good long term hold in the materials sector.


I like the long term play of Agrium as its a bet on the worlds population increasing which is a safe bet. Also I like the current rate of dividend and its rapid growth. I feel they will take the similar approach as the (POT) Potash corporation and really award shareholders with high profit payments. This of course will make it a volatile but more than likely higher than average paying dividend.

I was light on my materials sector in my asset allocation so this also feeds into it. I am overly heavy in my American equities and I also wanted to increase my Canadian holdings. I started my position with 40 shares of Agrium on the TSX. The stock is also listed on the US markets at AGU.


Well first off you shouldn't trust anyone recommending anything to you on the internet. You should do your own research and come up with your own consensus as I am no expert or grandmaster wizard.

Agrium is a good play on rising food prices and demand. Simple as that.

or not buy?

Agrium in the short term of a couple years is not slated to do much so prices with fluctuate. Very possible to get in at a much lower entry point at least 10-30% of share price. I will more than likely add to my position when this occurs if it does. Could take 5 years plus to see this stock really move.


Many people are buying into Target lately. I have been giving it a solid look and put it into my watchlist. The dividend increase has many investors salivating such as myself. However I am not 100% convinced in the company. The above photo is one I took yesterday at a new 2 month old Target store in Canada during the middle of the day. As you can tell its pretty empty. This is normal for Target here. The place is a barren wasteland where staff outnumbers shoppers 5 to 1. There were no more than 10-15 shoppers at the entire store during that time which is truly remarkably depressing. They had one till open in the entire store with nobody at it. I could just hear the billions of dollars being siphoned by the low hum emitting from the light fixtures.

That all said it might be the right time to get in. Share price is down but rebounding. Head of Canadian operations has been fired and new guy hired. Problems have actually been acknowledged and slowly thing are getting implemented. This upcoming fall holiday season will really make or break Target in Canada. They really have to address the bare shelves issue which still exists and more importantly they have to reduce their prices to make them somewhat comparable to the US market where prices are notably cheaper. Right now Walmart in Canada is the go to store because of their vast products and more importantly low prices.

The stock as officially split 7-1 and after an initial rise in share price it has somewhat deflated on no new news. New iwatch rumors have started coming out and looks possible of a 2014 launch. No new Iphone news out but still of the same of a two new larger iphone launch of 4.7 inch initially and later 5.5 inch phablet. I personally excited for the new iphone as my old iphone 5 is now a dinosaur lol.

My holdings of APPLE is still massive at 700 shares. It is much more than I want to hold. I may trim down my position once I see another good uptrend. I am hesitant about trimming now as any shred of news could shoot the stock above $100 a share from $91 currently. I may write a few short term covered call options on it soon to hedge my bets. I ultimately would like to reduce my position by at least half by the end of 2014.

I will then spread out that equity between my current positions and also initiate possibly some new ones

My current watchlist is

TAT&T, Inc.35.3910.325.303.431.84

SANBanco Santander, S.A.10.5919.616.200.540.64

PGThe Procter & Gamble Company79.9321.313.203.752.57

NA.TONational Bank of Canada45.779.94-4.31-

ESVEnsco plc55.089.245.605.963.00

AZNAstraZeneca PLC75.4746.275.101.633.80

PFEPfizer Inc.29.789.243.503.221.04

TGTTarget Corp.58.2919.693.602.962.08

POTPotash Corp. of Saskatchewan, Inc.38.4221.233.901.811.40

HSBCHSBC Holdings plc51.7913.373.803.882.00

HSE.TOHusky Energy Inc.36.0618.21-1.97-

AGU.TOAgrium Inc.100.3615.18-6.29-

Status Report-

All is well and portfolio is chugging along with some small gains. Dividends are rolling in. I used a small portion of my margin to buy Agrium but I will cover it by the end of the month.

Net Worth-
Everything looking good this month so far and I don't project any large expenses. I have to pay some money in Lawyer fees relating to my brewery start up but its a slow process and might not be until next month when i pay them. The brewery itself is still in the funding phase but its very close to being complete. I will soon release more details but right now its pretty confidential until all the contracts are signed.

Side Hustles-
I started selling a few items on ebay I no longer need or want. Hopefully I can squeeze out a couple k this month. We will see!

Plan Grandma Olga -
Earlier this month I made a post Plan Grandma Olga. In which I was in the process of constructing an ETF portfolio for a new retiree. Since that post I have adjusted the asset allocation and funds. I hope to pput the plan in action next week and will make a post on its progress. We have since opened up an online  brokerage account and in the process of having money transferred in. Stay tuned!

Random Notes-
Next issue. Next issue is a magazine subscription service on your apple/android tablet or windows 8 computer. It has over 100 magazines you can have access to and it also has back issues you can download. It cost $10 a month for unlimited access and right now I am trying out their free trial for 30 days. If you enter in the code bonus30 it will give you an extra month of free trial for a total of 60 days. Not too shabby. It has my favorite magazines Moneysense, Canadian Business , Money, Consumer Reports, Popular Science and Popular Mechanics as well as many other offerings.A subscription will allow you to download on 5 different devices so you can easily share a subscription with friends or family. So far a couple days in I kinda dig it and I may actually pay for it once the trial is up. I have the Canadian version and there is also a US version available that will probably be better as us Canadians constantly get hosed!

House Hunt. No new inventory on the market right now I am remotely interested in. If the right place comes up and the timing is right I will make the jump to downsize.

Cutting out HBO. Game of thrones is done and I am officially cutting out my HBO+ movie package off my bill to save $20 a month. There are a few shows I enjoy on HBO like Bill Maher and Vice but I realized I could just torrent what I am missing for free. Should of cut this unneeded cost long ago as I rarely used it to justify the cost. Oh well!

Saturday 14 June 2014

My Net Worth Update June 2014

     June 14 / 2014  : Updated every mid month


Home 2014 assessed value                                  total                  $1,190,000

-Equity Investments
Tax free saving account TFSA -               $33,850
Retirement saving plan RSP -                  $98,853
Canadian margin account -                     $137,668
US margin account ( Ex Rate 1.0851)-   $168,837
margin available $214,674.21
                                                                               total:                 $439,208

-Other Investments
Warehouse Income property 2014 assessed value
                                                                               total:                  $384,000
Chequing account                                      $1,928
Business account ( brewery startup money)
                                                                               total:                   $92,689


                                                                                  total:                       0
                 June 2014 Grand Total Net Worth:      2,105,897       

                                     Gain/loss from last month + $3,165
May 2014 : $2,102,732 Details link

Total investments and cash available     $915.897
Total non-income fixed assets  (home ) $1,190,000
   Net Worth Ratio
43.4% Investments and cash
56.6% Fixed Assets
  Investment Yields
-Warehouse commercial property Income 
 $1,912 a month minus $678 expenses ( maintenance,tax) =  Per month: $1,234                                              Yield on assessed value:  3.85%                Total year profits :$14,808

-Equities market value :439,208           Forward Monthly dividends Avg:  $1,213
-Average Forward Yield On Market Value  : 3.31%  
                                                              Total Forwards dividends yearly $14,556

    Grand Total Passive Forward Yearly Income :    $29,364

                  Per month average total     :          $2,447

 In Summary-
 Overall I am happy to be headed in the right direction as the last few years I haven't been. I don't expect large increases from month to month but hopefully a modest rising trend as I plan to keep my expenses low and reinvest my retained passive income. I should be able to retain at least 70% of my passive income on average each month which is equal to about $1700 of capital I plan to further inject into my equity investments every month. I do not foresee any large costs on the horizon other than my brewery startup and corresponding lawyer fees with it. Hopefully the markets continue upward and my plan of operation snowball my money into a billion is still intact.

Several factors have contributed to my June net worth.


-Market was generally up. My large APPL investment of 100 shares split to 7-1 to 700 and has been continuing to run up. It is about 15% of my portfolio weight which I feel is crazy high. I may start to trim down my position once I see $100-105 in post split price and balance out more my US portfolio. I am confident they will have a good run to at least the end of the year especially with iPhone 6 orders. Their Iphone 6 is slated to have a larger screen which was a major gripe with users as Android phones dominated the larger screen market. This pent up demand for a larger screen iPhone I believe will do gangbusters as their best initial launch phone to date. I for one am waiting on one. Apple plans on releasing a new product category and many are speculating it could be an IWatch. To me it is quite niche and the success of it will be dependent on its capabilities and more importantly price point. If successful it will spawn a revolution but if it proves to be a dud it will fall to the wayside like Samsungs current offering. I am guessing the latter but no doubt the Iwatch will receive that initial pop.

-Dividends have started flowing in for May $531.13 and so far in June of $332.60. Much more to come in June as many end of the month payers coming in. I have missed a few ex-div dates that pay this month so I am not fully efficient yet here but almost.

-Reduction of bills. I have really been watching and keeping track of my expenses and trying to live more frugally. I have cut down my internet and TV bill this month by cutting out unneeded services. I also cut down my cell phone bill a month prior by switching to a new provider

-Ebay. I have begun selling a few items I no longer require around the house and hopefully it will start adding up. Its remarkable how much stuff I have I do not use or care about anymore. Hopefully it will add up so I can buy some more stocks.


-Expenses. I had a few high bills this month primarily my Income property tax of $5800. Pretty frickin high for a property only worth $384,000 if you ask me. But you gotta pay the tax man! Also payed for yearly medical fees. It all adds up I tell ya.

-My income property rental. Turns out my tenants in my commercial warehouse rental were running some sort of high stakes poker game and got robbed! LOL The drama! The police got involved and needless to say I am finding new tenants. Problem is lease rates are down which my yield will go down. I have since found some new stable tenants for the next month. Overall my rent cheques will be going down from $2100 to about $1920  a month of a difference of $180 which kinda sucks. The projected yield of the property will be about 3.85% at its current accessed value of $384k. I have had the place listed for sale at 380k but is a soft market right now for identical places selling for about 350k so I took mine off. I plan on holding the property for another year and then re-evaluating whether to hold or sell then.

-Currency Exchange. I lost about $2000 in currency exchange fees from converting Canadian dollars to American in my trading accounts over time. It was a detail I overlooked initially as I didn't think much of it at the time of micro transactions. Lesson to be learned. I have since read up on ways to not pay crazy high exchange fees and will probably go that route in the future with larger transactions.

-It basically involves buying Horizons Us dollar ETF DLR in Canadian dollars. From there you call your broker and have them journal it over into you US account which will show up as DLR.U. This whole process can take up to 3 days while the trades settle and your cost would be only the two trades you would have to make so $20 or under. Also if the process takes 3 days you will be subject to currency fluctuations good or bad. Overall it is a great worthwhile method if you are doing large currency conversions from account to account.

To better explain everything here is a Moneysense magazine article on this
Moneysernse Norbits gambit

- Lawyer Fees Incoming- I will be incurring some lawyer fees in the near future as there were some costs with setting up everything for the brewery startup I will be investing in. Theses costs include professional counsel, my numbered company maintenance , bringing my holding company up to date and filing. I have budgeted this total amount to be around 5k and it could run hopefully way under that. Crosses fingers :)

-Unrelated Note- Somebody keyed my wife's SUV all the way around. Man this makes me upset. What kind of punk destroys anothers property like this. We have been racking our brains on how why and where this happened. It is not super noticeable but its there. Might be able to buff it out. We will see. I really don't want to pay for a $500 deductible to get the whole thing repainted and a claim on our insurance. Grrrrrrr.

Special Thanks

Special Thanks to Dividend Mantra for mentioning my post on his blog as it has has driven quite a bit of new traffic on to my noobie blog. Don't bother reading my blog without reading his first as he is my master! As a token of my gratitude for his generosity I bought him a beer and hopefully he returns the bottle for deposit lol. Catch him here at

 Special Thanks to Rockstar Finance for adding me to their net worth page. I currently hold the number one spot but I know there are many other bloggers out their with a higher net worth but are just shy or private about posting it. I don't anticipate being on top for long as many new people signing up and people with much higher growth rates than I. Catch them at

Special Thanks for all the readers and replies on the board. Much more than I anticipated! I really appreciate the constructive replies as I am slowly learning about blogging. Recently I took down all my kool pictures because of copyright laws I was unaware of. Silly mistake by me and thanks to those that pointed it out to me. I will start taking my own pictures soon enough. What free use image sites do you guys use? Everything here is still a work in progress so things will change accordingly with trial and error.

I am heading out with the family for a couple days on Sunday for a lil getaway. I think I may need a computer detox for a couple days as my family misses me lol.

Tuesday 10 June 2014

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?

Saturday 7 June 2014

I just spent $400k Into an Overvalued Market!

 The Market
We are into a 5 year bull run where the trajectory has been nothing but straight up. Everybody during that run looks like a stock picking wizard. P/E ratios are climbing signalling to an overvalued market. Why would anyone put over 400k into the market in the last couple months? But who knows how long this will last? Nobody has a crystal ball and this run might end tomorrow or in another 10+ years.

Where else would you put it? Bonds? With interest rates keen to rise you must be crazy! Why would anyone want to lock up their cash for five or ten years at this yield. Worse yet if you cash out after interest rates rise you will actually lose money.

Real estate?
Obvious Canadian real estate is in a bubble currently and serious correction bound to happen. Plus yields are currently quite low as well as liquidity. Also real estate is not very tax efficient as its taxed as regular income for yields and tough to hold in your registered accounts. Although US real estate is fairly valued right now the tax implications for owning foreign real estate is not very favorable.

 My Choice
So whats a guy with 400k to do? Why not just pay market value for a portfolio of dividend growth stocks. This guarantees me a return on my investment via dividends and pays me currently 3.55% and that number will rise every year in the future. Makes sense to pick aristocrat stocks with long histories of dividend increases. Also companies than continue their dividend increases throughout market corrections as well has handle those corrections fairly well compared to other non dividend paying growth stocks.

With that said in the past couple of months I went all in. Constructed a plan to have a well diversified portfolio across the sectors and companies around the globe, Although I am still too light on International exposure which will be addressed in the future. I went with a higher American based company rate because many of the companies are multinational. My portfolio only contains stocks that pay a dividend. Some low (Visa at .74%) and some high ( Bell Aliant 7.08%). They are not all growth stocks as some have a very high yield and payout ratio but they are countered with some high potential growth stocks like Visa, Dollarama and Suncor. Overall it is a good mix I am pleased with the overall results. I do intend to do some mild rebalancing but nothing drastic in the future. My portfolio does contain some REITs but I do not plan on adding to those positions. I intend to reinvest all my dividends into my current positions or at times open new ones. I hope to make a buy every month or two and will blog about the buy and reasoning for it.

My final buy of my portfolio and this month is Fortis FTS a Canadian 40 year dividend aristocrat. I doubled my position from 150 shares to 300. It currently yields about 4% and total forward yearly dividends 384. It has a high payout ratio of 81% but their business is very slow and steady. It is currently undervalued I believe and its a value play. Dividend growth rate has been 16% of the last 10 years. The stock was very resilient since the 2009 crash but has not had much upside since then so there is plenty of room to catch up. I like the company as I use their services as they have pretty much a monopoly in town. I was light on utilities and made it into one my core Canadian holdings.

                                                    FTS Last Trade - 32.10
                                                             Dividend Yield
Market Cap$6.9BBeta0.32
Revenue (TTM)$4.4BEPS$1.58
Shares Out.214.5MBook Value$28.15
Dividend Yield3.99%P/E20.3x
Annual Dividend Rate$1.28Price/Sales (TTM)1.6
Ex-Div Date8/13/14P/Cash Flow (TTM)7.6x
Pay Date9/1/14Operating Margin19.32%

Current Total Investments
In my overall Asset mix I am close to where I want to be with my investments. I am heavier than I would like towards real estate so any future investment will go toward my equity side to increase that ratio. I consider my real estate like a bond with a safe produced fixed income. I do not anticipate much capital growth with it and for the meantime I consider it a long term hold. I have set aside about 85k to go towards a start-up brewery. It is obviously a speculative investment which is at a much higher risk but it is under 10% of my overall investment assets so its a small portion. I have a good feeling about the brewery as a good steady investment. Also what I like about the brewery is that it is tied to some real estate where they are purchasing the building it will be run in so I have some insurance their on total loss. It will be run by well established guys in the business with a great reputation and in an undeserved and growing area.

So far things have been fun with my blog. I enjoy updating my holdings, dividends and net worth regularly. I would like to thank Rockstar finance located here   for adding me onto their net worth page and the traffic that it brings to me blog. Thank you guys I am grateful! Also for Modest Money adding my to their top finance blog list  I have recently acquired a new domain which at some point I will switch over to the future. I am still quite the novice to blogging and my web skills are sub-par. I am thinking of taking a course on WordPress or even having someone create a fancy website for me.  I plan upping the quality of my posts as well as adding some resources for people as I get more comfortable with everything.

So what do you guys think? Am I crazy for jumping into a heated market? Do you think I am well diversified too much or am I too heavy on American holdings? Your thoughts on bonds and real estate? Plus who like beer? I don't but I love profits!

Upcoming updates- Net worth in about a week as I aim to update the total every mid month

Till next update
Good Day and Grind On!