How to ”profit” from new financial ”products”.

Recently, TD Bank which has an ownership interest in TD Ameritrade came out with another new service — yet another new service! Called the TD Active Global Enhanced Dividend ETF, (exchange-traded fund), it mainly invests in dividend-paying equities around the world and is actively managed. The graph above shows the fund’s portfolio make up.
”Actively managed” is the primary reason why, over the course of a decade, over 90% of these funds fail to match the simple act of buying and holding an index ETF which replicates the S&P 500. The managers need to buy groceries and pay the rent. They need to get paid. Their wages subtract from fund performance.
It is possible that the TD Active Global Enhanced Dividend ETF will outperform the S&P 500 — possible but highly unlikely. Knowing well that ”free” and ”new” sell, Wall Street/Bay Street are constantly spewing out new ”products”.

The best way, absolutely, to profit from these is to stay away from them and seek the very high probability of outperforming them through the Monday Morning Millionaire Program approach to investing.

The TD Active Global Enhanced Dividend ETF  investment method which you can read below is taken directly from their promotional material. Read it to see what does not work most of the time.

”The portfolio managers seek to achieve the investment objective by investing primarily in dividend-paying equity securities of companies located in developed markets around the world. They may invest in securities of issuers located in emerging market countries. Eligible securities will be selected through an active fundamental methodology that considers an issuer’s ability to profitably generate and grow free cash flow and its efficiency at allocating capital. Non-dividend-paying companies may make up to 15% of the overall portfolio. The portfolio managers may use options to enhance income and hedge any or all foreign currency exposure in the TGED.”

The best that one can say about new ”products” is that they provide jobs for those who create and who manage them. They do so at inexperienced investors’ expense.  The Monday Morning Millionaire Program investing philosophy protects us from them.

The 50/50 asset allocation and the related benefits

You can see the Monday Morning Millionaire Program investing philosophy results below.

On Sept 2, 2010, MarketWatch Assistant Commentary Editor, Jonathan Burton published a paper titled ‘Nifty 50/50’ portfolio keeps investing simple.  Investors only need to study this impactful and actionable article for a few minutes to develop a mindset which will give them investing peace of mind. We have frequently referred to this paper in our blogs. This approach uses three index-tracking exchange-traded funds (ETFs) — one for US stocks, one for international stocks and one for bonds. Half of the money is kept in stocks and the other half in bonds. It is a rebalanced annually to maintain that 50/50 ratio.

Leading up to September 2010 and going back 10 years, this 50/50 portfolio outperformed the S&P500.

Leading up to September 2010 and going back 25 years, this 50/50 portfolio just underperformed the S&P500.

Monday Morning Millionaire Program members know that over the course of a decade, holding an exchange-traded index fund which mirrors the S&P 500 outperforms over 90% of portfolios including professionally managed ones.

Leading up to April 2019 and going back 7 years, the Monday Morning Millionaire Program outperformed the S&P500. Our program differs from Nifty 50/50 in two ways.

First, it keeps half the money in only one ETF (SPDR S&P 500 ETF (Symbol SPY) or iShares Core S&P 500 ETF (Symbol IVV) or Vanguard S&P 500 ETF (Symbol VOO) or the Guggenheim S&P 500 Equal Weight ETF (Symbol RSP).) It keeps the other half in a money market fund (TDB166 now paying 2.13%).

And second, instead of rebalancing annually, our program rebalanced any time that the S&P 500 dropped by 10%. There were four such opportunities in 2018.

The Monday Morning Millionaire Program recently changed the required rebalancing drop to 5% from 10%. Our return roughly equals the S&P 500. Because we keep 50% in a money market fund, our portfolio has half the volatility, that is, half the risk of being fully invested in an index ETF tracking the S&P 500.

We see no reason to change this approach to investing.

Troublesome investing facts; first five of many

1. Forty years ago, you could get stock market television news for about one hour daily. Most of it was drivel and was not actionable. That is, it was useless. Today, you can get 18 hours daily. Much like 40 years ago, investors would be better off if they ignored all that and simply practised the six habits of Monday Morning Millionaires.

2. Three-year returns on initial public offerings are negative almost 100% of the time. The founders of these companies know more than you or I do about their companies. They are cashing in their chips.

3. On Wall Street/Bay Street, great money manager wealth rarely indicates great money manager investment performance.

4. After taxation and inflation, the return on most bonds is almost always negative.

5. Over the course of a market cycle (peak to trough to peak) beating the market is nearly impossible. Fortunately, any high school student can equal the market.

Finally, unrelated to the above, please note that we offer a free half-hour discussion with you to allow you to see whether our six-hour, one-on-one coaching program ($C1,700 including taxes) suits your investing needs. Contact me at milan@drmilan.com.

Financial stress survey results, June 24, 2019

Happy Canada Day and Independence Day!!

Members’ main source of financial stress

Financial readiness for retirement 52%
I have no stress. 29%
Higher education costs 12%
Inadequate income 2%
Health care costs 2%
Debt 2%
Looking after elderly parents 1%

Our June 24, 2019 survey asked our embers for their age category, citizenship and response about their main source of financial stress.

By the end of June 25, we received responses from 53% of our subscribers. (Average response rates to surveys are 10% – 15%.)

Of those who responded:

  • 63% were between 50 and 70 years old.
  • 24% were between 30 and 50 years old.
  • 8% were 30 years or younger.
  • 5% were over 70 and/or retired.

Just under one half were Americans, just under one half were Canadians and the rest were from other English-speaking countries.

 

 

Health care students and investment education. Survey results

Our April 2019 survey asked whether health care students should receive investment education. Our members who are not in health care would likely be interested in the results of this survey as well.

High-income earners such as healthcare workers are the target of aggressive salespeople.

The need for unbiased investment education is obvious.

There must be more money.*

Happy Canada Day and Independence Day!!

Also, survey results of members’ main source of financial stress

Financial readiness for retirement 52%
I have no stress. 29%
Higher education costs 12%
Inadequate income 2%
Health care costs 2%
Debt 2%
Looking after elderly parents 1%

Motivated by our objective to increase the percentage of members with no financial stress, we have introduced a no-charge half hour session for members and followers to see if our six one-hour sessions would be useful for them. Take a look.

*Quote: D. H. Lawrence The Rocking Horse Winner

 

 

Our personal portfolios, 6/24/19

As I stated previously, since January 2012, we have outperformed the market slightly in our core portfolios. It is almost a certainty that we will not be able to continue to do so. However, since we have the six habits of highly effective investors, it is an absolute certainty we will be able to equal the market minus a small transaction fee. Seasoned members on the Monday Morning Millionaire Program do so.

On most Tuesdays, I publish with comments, Rosi’s and my core portfolios and my fun portfolio holdings and the activity which took place on Monday.

Rosi does not have a fun portfolio. She has her fun skiing, cycling in the skiing off-season, making muffins, walking our dog, reading, making our travel arrangements and spending time with our grandchildren.

My Fun Portfolio

Year to date Last 12 months Last 3 months Last month
Fun portfolio -5.01% -13.18 +3.07% +2.26%
S&P 500 +18.87% +9.48 +3.88% +3.20%
TSE Index +21.01% +5.08 +3.81% +2.46%

Can’t brag about that one at cocktail parties.

Please note that the only way to beat the market is to ignore one or more of the six habits of highly effective investors. We ignored two. One, the portfolio is fully invested, that is, it cannot be rebalanced to a sensible asset allocation and two, it has only one stock, that is, it is not diversified by owning the entire US market via an exchange-traded fund which mirrors the S&P 500 index.

Since inception, the portfolio is down significantly because the only security in the portfolio, AbbVie (symbol ABBV), tanked immediately after we bought it.

Since that time, we sold derivatives on ABBV at each expiry date and each time that we were assigned. (Covered calls 12 times and cash-secured uncovered puts 9 times.) We have recovered 2/3 of the loss overall but still hold a 1/3 loss position.

Yesterday, I sold covered calls on ABBV, expiry date June 28, strike price $78.00 and got a premium of $US520.00 per ten contracts.

The premium has been as low as $US500.00 and as high as $US1,200.00 per ten contracts.  Go figure!!

Since my fun portfolio makes up only 5% of our market holdings, it cannot have a major impact overall.  It could, however, come up with an unusually good opportunity which we could apply to our core portfolios.

Core portfolios (all are tax-advantaged)

After withdrawing our entire annual budgeted income needs from my personal core portfolio recently, I followed Paul Samuelson’s advice (Samuelson is an economics Nobel laureate) stating that investing should be like watching paint dry or grass grow. We maintain a 50/50 asset allocation with 50% in a US money market fund (TDB166, now paying 2.24% annually, down from 2.25% four weeks ago) and 50% in the RSP ETF.   That 50/50 asset allocation equals the market over the course of a market cycle (peak to trough to peak) with half the volatility, that is, half the risk.

 

 

 

 

Currency fluctuation and our portfolios

 

On June 20, the US dollar dropped 2 cents relative to the Canadian dollar.

Somewhat fewer than 50% of Monday Morning Millionaire Program members are Americans, somewhat fewer than 50% are Canadians and the rest are from other English-speaking countries.  The millions of Americans and Canadians visiting each other’s countries each year have a long accepted the currency difference. ($US1.00 roughly equals $CAD1.30.)

A two cent daily move, that is, a 2% move up or down, is meaningless when buying a hamburger or gasoline or going to a show. We tend to ignore it. But it is a $50,000 gain or loss in one day in the portfolios of many Monday Morning Millionaire Program members. That is hard to ignore.

Let us look at the math.

On June 3, 2019, our blog Enough! How much is enough?  referred to a CNN article titled Is $2 million enough to feel wealthy?  That article mentioned an interesting survey by Charles Schwab which showed that a net worth of $2.27 million would allow most people to feel wealthy.

Consider the following:

  1. Members of the Monday Morning Millionaire Program have an annual income of about $100,000 on the average. (Most are dentists, veterinarians and optometrists. Their average incomes are easy to find on the Internet.)
  2. The six habits promoted by the Monday Morning Millionaire Program promise that members will be able to maintain their career income level into retirement without encroaching on the principal.
  3. A 4% rate of withdrawal is widely considered by experts as a safe way to do so.
  4. The portfolio(s) size which would allow a 4% withdrawal rate to generate $100,000 without encroaching on the principal is $2.5 million. (4/100 x $2,500,000 = $100,000)

Monday Morning Millionaire Program members either are already there or are well on the way to getting there.

2% of $2,500,000 is $50,000!

The bottom line here is that investors need to consider percentages as well as cash amounts when reviewing investing activities.