As mentioned in my prior blog post, I’m currently catching up on my blog posts. The travel planning as well as the culture shock of being in Asia for the first time ever distracted me for a bit and now I’m feeling like I can get back to writing on here again. The above picture is from Benchakitti Forest Park in Bangkok, Thailand. It’s a very different take on a park and for those looking to visit it, the floating bridges throughout the park are a real nice way to take in the view from another perspective than walking through it at ground level. And yes, per the clouds in the sky over the park, I did get soaked by some rain.
Today, we’re focussing on the September 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.
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
Since the last monthly update for August 2022, 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
Here is a list of prior month end summaries:
Compared to August 31, 2022, my B&D portfolio YTD return has deteriorated from -10.95% to -16.48%. I also now hold the last and worst 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 also deteriorated. September 2022 continues to be a punch in the face month for financial markets. My own portfolio is now a 70/30 portfolio as mentioned earlier 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.
Regardless of current circumstances, I continue to feel that my portfolio construction has been holding up well in these uncertain times. These are times where many will break and either a) make changes to their investment portfolios or b) go to cash and miss potential upswings. At this time, the only real option is rebalancing the portfolio and only where the portfolio allocations have skewed significantly enough to warrant that. For those of you who continue to buy more investments with cash on hand from employment income or other sources, I salute you.
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 -16.48%, I’m off by quite a bit.
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. 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.
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 them 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.
After rereading my prior monthly reviews, I’m going to explain this part a bit differently. What I’ve wanted to say all along is that 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, for September 30, 2022, the only real risk regarding my annual cashflow is the deficit of $17,882.83 between the dividend the portfolio produces and the 4% SWR and gets covered by selling assets within my B&D portfolio.
Is this 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 reviewing everything above, my thoughts continue to be the following:
Steady as it goes for now.
What do you think? Let me know.