June was all about Grandkids
Exactly two years ago, we entered the land of retirement. Family has occupied most of our time, but we managed to slip in considerable travel plus my writing, and, of course, my investment analysis.
A bit of a roller coaster on the markets this month with the Brexit vote. The markets tried to guess the outcome of the vote, first by dropping in anticipation of a “No” vote, then gaining with an expected “Yes” vote and ultimately tanking after the actual vote came in “No”. Short term market moves are almost always driven by raw emotion. However in the long run, markets ultimately react to the fundamental performance of the companies on the market. The markets regained their sanity by the end of the month, ending up flat in Canada and a modest gain in the US.
This proves again that “timing” the market is a fools errand. What works over the long haul is “Time In” the market.
My Canadian stocks finished the month slightly down (up almost 10% on the year), as did the TSX, but my US stocks had a great month with a 5% gain (over 12% YTD), considerably outperforming both the DJIA and S&P. The US dollar strengthened with the Brexit situation, giving my total portfolio a monthly gain of 1.4%.
My YTD returns are over 8% (over 10% if you don’t consider the exchange rates), which would be great for a full year, let alone six months.
Here is a summary of the market performance and my portfolio:
|BB Total (no FX)||1.48%||10.42%|
|BB Total (incl FX)||1.40%||8.23%|
First Half of the Year.
With half the year gone I am taking the time to review how my individual stocks have performed so far. Below is the percentage increase (decrease) on a YTD basis.
Note: excludes cash on hand, gains on sales, or dividends paid.
|Manulife Financial Corp.||MFC||(11.39)|
|Potash Corporation of Saskatchewan Inc||POT||(10.29)|
|Power Financial Corp||PWF||(5.37)|
|Sun Life Financial Inc||SLF||(1.65)|
|BCE INC. PREFERRED SHARES SERIES AD||BCE-D||(1.21)|
|Great-West Lifeco Inc.||GWO||(1.14)|
|Suncor Energy Inc.||SU||0.75|
|Royal Bank of Canada||RY||1.85|
|Bank of Montreal||BMO||4.07|
|Shaw Communications Inc||SJR.B||4.47|
|National Bank of Canada||NA||4.57|
|Canadian Imperial Bank of Commerce||CM||7.62|
|Brookfield Infrastructure Partners L.P.||BIP.UN||11.59|
|Pembina Pipeline Corp||PPL||13.39|
|Bank of Nova Scotia||BNS||14.00|
|Russel Metals Inc||RUS||37.89|
|Weighted average (excluding dividends paid and gains on sales)||5.41|
|The Coca-Cola Co||KO||5.52|
|Cisco Systems, Inc.||CSCO||5.65|
|Procter & Gamble Co||PG||6.62|
|Total SA (ADR)||TOT||7.01|
|Kimberly Clark Corp||KMB||8.00|
|Emerson Electric Co.||EMR||9.05|
|International Business Machines Corp.||IBM||10.29|
|Merck & Co., Inc.||MRK||10.39|
|Unilever plc (ADR)||UL||11.11|
|Lockheed Martin Corporation||LMT||14.29|
|Johnson & Johnson||JNJ||18.09|
|Public Service Enterprise Group Inc.||PEG||20.47|
|Royal Dutch Shell plc (ADR)||RDS.A||20.59|
|Verizon Communications Inc.||VZ||20.81|
|Weighted average (excluding dividends)||11.17|
Odds and Ends
HERE is a slightly different take on my strategy with a focus only on Canadian stocks. His long term returns are very similar to mine and has consistently beat the market.
Click HERE for another common sense look at investing and growing wealth by high net worth investors.
Wisdom from John Oliver
One of our faithful readers, David, provided this John Oliver video reiterating my mantra to avoid financial advisors:
Note: most advisors will not invest in the securities that they recommend for you. The less experienced advisors have no money to invest – they need to earn money from you in order to build a portfolio. The more experienced advisors, with wealth accumulated from charging people like you, would not buy securities with such poor returns.
Ideal Canadian Portfolio
In April’s blog, I listed what I consider to be the “Ideal” portfolio of Canadian Stocks (top ten) consisting of: TD, RY, PWF, BCE, RUS, AGU, SU, TRP, FTS, TRI.
Doing an analysis of this hypothetical portfolio over a 10 year period (2006 to 2015, which includes the most recent “crash” of 2008-09), this portfolio would return a compound average annual growth rate of 11.16% – not counting the earnings on reinvestment of dividends. This includes the capital gains and the actual dividends of each of these stocks.
The only stock that underperformed during this time is SU, which is under assault from the low oil prices.
Had you bought 100 shares of each of these stocks on January 1, 2006 you would have paid $23,026. Those shares would be worth $52,869 as of December 1, 2015 and you would have received $13,482 in dividends, (which would be reinvested and also produce a return). This would bring your total to $66,351 or 2.9 times your original investment – almost triple over 10 years.
By contrast, the TSX compound annual growth rate for the same period was less than 1.5% plus dividends and the corresponding ETF (XIU) had a compound annual growth rate of 4.51% including dividends.
Let me know if you want to see the full analysis.
Housing (Real Estate)
I regularly get questions about investing in real estate and my response is always the same – buy a home if you can afford it, really want it, and plan to stay in it for a long time. But don’t buy a home as an investment – it is not a “good investment”.
The most recent question came from one of our Canadian followers who lives in Doha and is planning on returning to Canada some day. Click on the links in the response to see the details from my book, Simple and Successful Investing. For a preview of my book click HERE.
First I want to say thank you for all of the wisdom and advice you have been sharing through your newsletter.
It helped me decide on some stocks that have given solid returns. It was the first time I invested in any significant capacity and
I feel more confident about moving forward with more stocks.
I have a bit of a convoluted question and it has to do with the CRA. I wondered if your work in your past life could help shed some light.
Basically, I have been a non-resident for 7 years…and then…I realized recently that it may have been a mistake. I was wondering if I could
Become a resident before moving back to Canada, or whether I would be taxed on all the income I have not been taxed on as a non-resident. (And, if so…would they also back-credit me the Overseas Tax credit..even if I were to be taxed?)
Why would I want to do something crazy like that? Basically …I am still under the impression (delusion?) that owning a home would be a better Investment than paying rent. I won’t be able to buy one once I leave this job…the salary simply won’t cut it as a partially employed teacher once I return home.
I want to buy a place, rent out the basement to help with the mortgage, and not pay rent. Being a resident would allow me to put down a smaller down payment and
the college income could help me qualify for a mortgage.
I was looking at the rents in Toronto…and thought….but if I owned a place, that $24000 in rent could go towards …paying off my mortgage? Lol
I don’t know…
I know that you are not big on property ownership …but if I were to try to back pedal and become resident, would that be possible or wise??
I’ll start with your house question.
I worked with a consulting firm whose senior partner was about my age and had worked hard all of his life. When he graduated from University he wanted a Harley really bad but would have stretched his financial resources to the limit. It was a lifelong dream of his to have this Harley. Instead he went to work for an accounting firm, got his CA and became a partner. Then around age 45 to 50, he finally bought his Harley and loves to take it out on the road. He could afford it without stretching his finances and didn’t need to apologize to anyone for having it. He was ecstatic to finally achieve his dream. But you know, he never looked upon it as investment – it was a luxury that he could afford.
If you really want a home that is yours, rather than just a place to live, you don’t have to apologize for it. If you can afford it, go ahead and do it. There are lots of good reasons for owning a home, but investing is not one of them. It is financially more viable to rent than to own, but if you can afford to buy and it will satisfy other needs, then do it. I have attached a proof copy of my book for you to review. Chapter 12 Real Estate. We are choosing to rent, because it is the best financial decision for us. I could afford to buy a home for cash, but it doesn’t make much financial sense. We only want a place to sleep and return to after trips. Owning stuff, including a home, doesn’t fit into our personal needs. In a few years we will be in a senior home anyway.
As for your tax position, don’t let that get in the way of your decision. You are far better off to stay a non-resident until you return to Canada. It is easy to take up residency for tax purposes when you do return, but if you do it now, it will really complicate your life. Owning a house is not relevant to this decision. If you stay a non-resident until you return, you need pay no taxes on your investment income. You will only pay taxes on any earnings that occur after your return. Anything earned before then is tax exempt.
You can still own a house or condo in Canada and remain a non-resident. It just can’t be your “home” or permanent residence. You need to show that it is an investment property and is producing some income. You can rent it out or perhaps have friends or relatives stay in it for a fee on occasion. You will be taxed on any profits at the rate of about 25%, but you likely won’t show any profit so will not result in any financial setback. Although CRA considers it an investment, I think it is a bad investment.
Once you return to Canada, you will not have an established credit rating, so it will be difficult time getting credit – mortgage, credit card, etc. Even with a couple million dollars with Scotiabank they wouldn’t give me a credit card. So if you are dealing with HSBC in Qatar it is easy to set up HSBC in Canada. They have been great with me, giving me priority service and instant credit. If you have substantial investments, you can use that as collateral against any debt you might want to incur, even mortgages.
HERE is a recent article on Rent vs Buy.
|Company||Ticker||Financial Strength||Dividend Yield||Dividend Growth 10-Year||Current PE Ratio|
|Automatic Data Proc.||ADP||A++||2.52||13||26.53|
|Deere & Co.||DE||A++||2.85||15.5||21.07|
|Exxon Mobil Corp.||XOM||A++||3.27||9.5||34.64|
|Illinois Tool Works||ITW||A++||2.06||12||19.25|
|Int’l Business Mach.||IBM||A++||3.64||20||12.58|
|Johnson & Johnson||JNJ||A++||2.77||9.5||19.73|
|Merck & Co.||MRK||A++||3.19||1.5||15.59|
|Novartis AG ADR||NVS||A++||3.42||13||21.23|
|Procter & Gamble||PG||A++||3.18||10||23.2|
|Public Serv. Enterprise||PEG||A++||3.75||3||15.28|
|Unilever PLC ADR||UL||A++||3.08||6.5||22.57|
|Company||Ticker||Domicile Code||Financial Strength||Dividend Yield||Dividend Growth 10-Year||Current PE Ratio|
|Bank of Montreal||BMO.TO||CA||B++||4.18||7||12.16|
|Bank of Nova Scotia||BNS.TO||CA||A||4.52||9||11.56|
|Can. Imperial Bank||CM.TO||CA||A+||4.66||6.5||11.15|
|Can. Natural Res.||CNQ.TO||CA||B++||2.39||23.5|
|Empire Company Ltd.||EMP/A.TO||CA||B++||2.07||10||13.72|
|Jean Coutu Group||PJC/A.TO||CA||B++||2.42||13||16.29|
|Magna Int’l ‘A’||MGA||CA||A||2.49||7.5||8.02|
|Nat’l Bank of Canada||NA.TO||CA||B++||5.08||10.5||10.09|
|Pembina Pipeline Corp.||PPL.TO||CA||B++||4.94||5||35.36|
|Royal Bank of Canada||RY.TO||CA||A||4.27||10.5||11.81|
|Shaw Commun. ‘B’||SJRB.TO||CA||B+||4.77||28.5||15.64|
|Company||Ticker||Domicile Code||Financial Strength||Dividend Yield||Dividend Growth 10-Year||Current PE Ratio|
|Novartis AG ADR||NVS||CH||A++||3.42||13||21.23|
|Siemens AG (ADS)||SIEGY||DE||A||3.4||13.5||12.54|
|AstraZeneca PLC (ADS)||AZN||GB||B++||4.78||13.5||20.2|
|Brit. Amer Tobac. ADR||BTI||GB||B++||3.74||14.5||18.16|
|BT Group ADR||BT||GB||B++||3.35||0.5||13.3|
|Rio Tinto plc||RIO||GB||A||4.02||11||12.44|
|Vodafone Group ADR||VOD||GB||B++||5.39||14||43.29|
|WPP PLC ADR||WPPGY||GB||A+||3.06||15.5||15.5|
|Tenaris S.A. ADS||TS||LU||B+||3.04||10||84.63|
|Philips Electronics NV||PHG||NL||B+||3.41||8.5||65.76|
|Unilever PLC ADR||UL||NL||A++||3.08||6.5||22.57|