Today, we’re focussing on the November 2022 monthly review for the portfolio. These monthly reviews are really important to make sure you keep your attention on what’s really important when it comes to your financial health. It’s important to be aware how your investment portfolio will allow you to move through each of the stages of your financial lives.
Below is the break down of what I focus on 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?
I’ve also included a list of prior month end summaries for ease of reference:
On that note, let’s get started with the November 2022 review.
The b&d portfolio allocations
Since the last monthly update, no changes have been made to the B&D portfolio and it continues to be have a 70/30 equity/fixed income split.
Based on where things stand now, 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
Looking at this current month, my own B&D portfolio has risen from being in 11th position to now being 7th out of 15.
I will highlight that most of the other portfolios are 60/40 versus my own B&D being 70/30. As a result, when the markets turn negative, the impact is felt more by my own B&D however the same is true when markets turn positive.
Overall, I’m still feeling good about things and not feeling a need to change anything at this time.
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 -8.30%, there’s still some work required for the B&D to get to a 7.50% annual return.
Regardless, negative years occur and as was seen with the comparables above, my portfolio is still 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 to cover my living expenses starting in 2023. The dividend yield on my portfolio is a very important component of my SWR and while I want as high of a dividend yield as possible, I want to ensure it’s made up of quality investments.
Why?
Consistent, reliable and growing dividends are key to having consistent, reliable and growing cashflow. Why do you think so many companies love recurring revenue models (like Netflix or Apple)? We should all love that kind of cashflow within our B&D portfolios. I definitely do.
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.
Regardless of market gyrations affecting the capital portion of our B&Ds, the dividend payout has been consistent month over month. The dividend yield may change as the portfolio balance fluctuates but the actual dividend cashflow is pretty stable and will continue to grow as companies announce increases on their dividend payouts. Here’s a summary spreadsheet from my own portfolio that visually explains my thoughts.
Note that I only actually started recording this level of detail from June 30, 2022 onward.
So, when people talk about sequence of return risk, that for me only represents the deficit between my annual dividend and 4% SWR indicated above. Is $17,585.27 for November 31, 2022 really a risk though? I guess that depends who you ask. For me, I can’t say it is at this time.
Two further caveats I’ve mentioned in prior monthly reviews and still relevant.
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 conclusIon
In reviewing everything above, my thoughts continue to be the following:
Steady as it goes for now.
What do you think? Let me know.
About the picture: Wat Pha Lat in Chiang Mai, Thailand. Came across this temple and temple grounds through the recommendations of a local songthaew driver. The original plan was to go up to the popular (what we later found out was touristy, crowded, and highly commercial) Wat Phra That Doi Suthep Ratchaworawihan and hike through the area surrounding it. Instead, our songthaew driver dropped us off at the base of the Wat Pha Lat Monk’s Trail (also known as the Pilgrim’s Trail). His recommendation was fantastic. The trail was easy but very enjoyable with a few friendly hikers crossing our path. As for Wat Pha Lat itself, it was a beautiful, calm and serene temple ground setting. We did continue up the mountain trail after having lunch to Wat Phra That Doi Suthep Ratchaworawihan. While the view of the city and mountain are spectacular from Wat Phra That Doi Suthep Ratchaworawihan, the actual temple grounds do not compare to the serenity and peacefulness of Wat Pha Lat. If you do find yourself in Chiang Mai, Thailand, I highly recommend hiking the Monk’s Trail and visiting Wat Pha Lat.
i guess you don’t hedge your portfolio to limit some of the downside damage.
looks like Powell became the Grinch who stole Christmas this year. he’s determined to get inflation
back to target, and the only way that happens is with a very hard landing. count me as one who
is holding a lot of cash in the form of PSA (60%) with some individual prefs (20%) and long bonds (20%). no stocks.
going to sit and wait it out since things look like they are going lower still.
My only hedge is by trying my best to maintain a balanced and diversified portfolio. By having a portion of the portfolio allocated to fixed income while the other portion is allocated to equities, it helps to smooth the ride. Case in point: the S&P 500 and Nasdaq are down far more than my B&D portfolio year to date. The TSX is actually doing better than my B&D. Holding a piece of various stock indexes from around the world along with fixed income is the best hedge. The best part is that I get paid tax efficient dividends along the way. Being retired now makes having a consistent cashflow coming in really important as it calms the nerves and minimizes my need to sell anything. I’m currently forecasting no need to sell any piece of my B&D until the end of 2023 or sometime in 2024 at the earliest.
As for Powell and the other central bankers around the world, my thought is that they’re actually doing the best thing possible by raising interest rates to combat inflation and removing quite a bit of high risk speculation caused by ultra-low interest rates. Their approach will quite likely usher in an extended period of stock market growth and prosperity while also providing a higher yield for fixed income investments.
Totally understand your reluctance about being fully invested, Nestor. I felt like that sometimes too on my path to FIRE. I just don’t feel like that anymore though. The big question will be: when will it feel right to invest back in? For me at least, it’s when I have the cash to invest.
Peter, i agree, Powell has no choice but to raise rates to stop inflation now before it gets out of control (even though he screwed up letting it get out of control). He doesn’t want to have to pull a Volcker and raise rates to 10% + and doesn’t want to be the next Arthur Burns and let it get embedded.
to me, that says rates higher for longer (not priced into the market), and hard recession (also not priced in). only after the dust settles and valuations come down to more reasonable levels, and stock yields rise to match interest rates, … we have some more pain ahead.
as for “feeling right to invest back in” … no feelings about it. all bear market bottoms have a few things in common going back to the early 1960’s. so i’ll wait until the market tells me when, because for now, its’ telling me to stay away.
so cash/PSA and floating and fixed reset rate prefs (8-9% dividends now) and some long bonds that i’m not happy about.. but given that i believe Powell will push us into recession, i’m content waiting.
actually, TSLA… that’s the poster child for this bubble. it’s the Nortel of this cycle and i’d say, when it gets back down to what it’s worth, $20, then i’d say the speculation is out of the market. that would be one of my “signals” lol
hhhmm… i didn’t think tsla would get to $20 until this time next year. seems Musk will get a margin call at $100 from Morgan … the fireworks will be mesmerizing to watch.
well well well. this is the first time in a year that the outlook brightened. there were some significant technical signals today that turned around the markets. it wasn’t just the CPI data. wont’ bore anyone with the details, but i have now turned around and am almost fully invested on the long side. the market told me.
how i’m positioned…
20% prefs (various fixed reset and floaters as mentioned before earning 8-10% dividends)
20% bonds (xlb, zlc)
20% commodities (cef)
15% stocks (veqt)
5% reits (zre)
20% cash (psa, for now, but likely in the next few days to be deployed)
cheers.
hopefully this works out.
Peter,
Thanks for your efforts on the Blog.
While your investing style is different than mine (I am 70% stocks, 30% ETF’s. No FI – utilities instead)
I enjoy your detail as well as your thoughts on why you make the trades.
Good luck and looking forward to future posts.
Greg