When it comes to the financial health and well being of an investment portfolio, I find it’s good to be able to sit down and review if it’s doing everything that I expect it do to. For me, that’s monthly. After all, I want to ensure that it’s going to be there to support me for the long term. 2022 is the transition year where my severance package came to an end and any income derived from any external sources outside of my B&D portfolio comes to an end as well. From 2023 and on, my current expectation is that all my income will be coming directly from my B&D portfolio. Ultimately, it doesn’t get more real than that.
For those of you who are still on their journey towards financial independence as well as the retire early option, will your investment portfolio allow you to move to that next stage in your financial futures at the point that you expect?
As was previously highlighted, here is the break down what I’m going to consider as part of my monthly review.
- How are my B&D portfolio allocations doing?
- How is my B&D portfolio doing compared to the comparable portfolios?
- Is the B&D portfolio hitting it’s 7.50% overall annual growth target?
- What is the dividend yield for the B&D portfolio?
Let’s get started.
The b&d portfolio allocations
Based on my prior posts here, here and here, I’ve eliminated the ETFs VSB, MFT, and ZPR from my portfolio and replaced it completely by XLB. This was a tough decision to make. My B&D has remained relatively unchanged since March of 2020 outside of adding cash when it became available and purchasing more ETF units.
The one exception though was purchasing MFT at the beginning of 2022 in anticipation of rising interest rates. Well, it was a stinker and I’ve moved on from it.
I will also admit that I am still questioning eliminating the last 12% allocation of ZPR and may reconsider. For now, I will need to think that over before taking any action, if any.
With all those changes made in July 2022, let’s review the portfolio target allocation versus the actual allocation. The portfolio is currently sitting at 66% equities and 34% fixed income. It should be 65/35 however I’m letting this go for the time being.
Looking past this, I’m going to apply the 5/25 rule I had previously discussed here. Based on the 5/25 rule, I don’t need to consider any immediate rebalancing of the portfolio at this time. Therefore, I’m going to leave things as they are for now.
The b&d versus the comparables
Here is a list of prior monthly summaries:
Compared to June 30, 2022, my B&D portfolio YTD return has improved from -11.69% to -7.56%. I also now hold the number 1 position against 14 comparables.
When it comes to the average, mean, worst and best comparable, the difference between my own B&D portfolio and the comparables has widened again in my favour. July 2022 was a great month for markets. My own portfolio is a 65/35 portfolio (65% equities/35% fixed income) while most of the other portfolios are 60/40. When the markets turn negative, the impact is felt more by my own B&D however the same is true when markets turn positive. I continue to feel that my portfolio construction has been holding up well in these uncertain times.
Now, let’s include the detailed breakouts of my own B&D portfolio and of each of the comparable portfolios.
The B&d portfolio growth targeT
Every calendar year, I set myself a goal of organically growing my B&D portfolio by 7.50%. When I say organic, I don’t mean hormone free, antibiotic free, free-range, or herbicide/pesticide free (beware, each blog post must contain a certain amount of cheese – if not, I should be flogged).
What I mean by organic is that any new funds added to the portfolio after the beginning of the calendar year from outside sources (e.g. from employment income) are excluded not to over-inflate the return. Also, as of 2023, funds coming from external sources will no longer occur as my reliance will be 100% on my B&D portfolio.
Obviously, with a YTD return for 2022 of -7.56%, even as this an improvement from -11.69% dated June 30, 2022, I’m off by quite a bit.
Regardless, negative years occur and as was seen with the comparables above, my portfolio is holding up considering the volatility we’re currently experiencing.
Next stop, let’s consider the dividend yield on the portfolio.
the B&D portfolio Dividend yield
My goal is to take a 4% SWR (safe withdrawal rate) from my B&D portfolio each calendar year. The dividend yield on my portfolio is a very important component of my SWR.
While I want as high of a dividend yield as possible, I want to ensure it’s made up of quality investments. I also want to ensure those quality investments pay dividends that are consistent, reliable and growing.
Also, the closer my dividend yield is to my 4% SWR, the less I’ll be reliant on selling investments to cover the difference between the dividend yield and SWR.
As at July 29, 2022, my B&D portfolio dividend yield is 3.1525%. This is lower than the prior month however with the move out of VSB, MFT, and especially ZPR, this slightly lower yield was expected. Also, I don’t gouvern my portfolio solely on dividend yield. I also need to factor in capital growth as well as risk minimization.
Two further caveats though.
First, I wouldn’t pull any money out of my TFSA. Therefore, the dividends deposited in my TFSA will be reinvested. I would either sell additional securities from my RRSP or my non-registered account to make up for that. Taxation would be the deciding factor between the RRSP and the non-registered account.
Second, I can’t actually pull any funds out of the LIRA until I turn 55 years old. So, same as the TFSA, either I’ll compensate by pulling funds from the RRSP or the non-registered account, whichever is more tax efficient.
Overall, what’s important is that the dividends continue to be paid out and negative market conditions have had no impact on that.
In reviewing everything above, my thoughts continue to be the following:
Steady as it goes for now.
What do you think? As much as July 2022 was a great month for the markets, there’s a lot of volatility going on out there. Talks of recession as well. How does that make everyone feel?