Retired and UnBalanced

There is so much financial pornography on the internet to sift through if you do a lot of reading. I'm always curious to have a look at what other people and professionals are suggesting to grow your money.

I use a hybrid approach but 95% of all our money is invested in individual Canadian dividend growth stocks.Mostly banks, telecoms, utilities, pipelines and railroads.

I keep a gambling portfolio of a few positions to try and generate some capital gains. I do this with money we can afford to lose and only hold for short term gains.

In a recent article by Ian McGugan in the latest edition of Report on Business magazine he highlights the investment returns of two hypothetical investors over the course of three business cycles encompassing the 1960's-1990's.

He highlights the unforeseen events and the meagre returns these people achieved. If you invested all the money you had in 1962 in a S&P index fund with dividends re-invested your return was a little more than 0% 20 years later. How brutal is that for an index investor? This is why I don't buy ETFs or index as an investment thesis.

Another investor does the same thing between 1980-2000. Her return was 15.6% a year. She did substantially better because she got the timing right. Can you? How do you time the market so you get the better results?

What the data really tells me is that even though these investors were invested in an index with over 500 stocks, they were NOT protected from bad news or market meltdowns caused by high inflation and the tech bubble burst.They were not protected because they were diversified.

The Balanced Portfolio

This 60/40 mix of stocks and bonds is constantly flogged by mainstream investors, advisors and bloggers alike. Truth is they don't know what YOUR return will be until the 20 years is up, do they?

It's a sales pitch to get you to follow them instead of yourself. During the 90's, you would have an 11.4% annual return, but that same balanced portfolio lost 1.1% during the 70's.

The Bad Age Advice

This gets me every time. As you get older you need more bonds for safety. Bonds ARE NOT safe. They lose value over time ad most never get their money back. Why is that? Most retail investors are sold Bond ETFs and the distributions NEVER keep up with the capital erosion of your money. Here are a few other things they suggest;

• under 40, 3/4 of your portfolio in stocks
• 40-55, 60/40 blend of stocks and bonds
• over 55, fewer stocks more bonds, no specific mix is suggested

The theory spewed here is more bonds will insulate you from danger. I would submit the danger is running out of money with assets like bonds that don't grow. I have sold all my bond ETFs for this reason.

Read Warren Buffet's latest letter to shareholder's from someone who knows how to invest.

" As an investors time horizon lengthens, equities become progressively less risky than bonds."

I try and look at investing like Buffett. We buy companies and NOT stocks. Look at your portfolio as a collection of stocks that will rise in value over time.

Diversification, bonds, preferred shares will not add value or save you from a market downturn. Just forget modern portfolio theory and invest in great companies you know something about and do it yourself.

I NEVER USE MY RETIREMENT MONEY TO TRADE IN AND OUT OF 

STOCKS!

Looking for Saving Ideas so You Can Invest? 

If you are looking at ways to save money this new book The Cashflow Cookbook can help you find some savings to then use to invest.

If you are having trouble getting your financial house in order and organized then you need to read Worry Free Money. 

If you are further looking for portfolio ideas then you might find my review of The 6-Pack Portfolio a way for you to get started on your investing journey. All of our retirement money is invested in this manner. We just hold more than 6 positions.

If you want to read more about the theory and methodology of some of Canada's professional investment/portfolio managers then you need to pick up a copy of the book 'Market Masters'. Robin Speziale conducts interviews based on a set of pre-arranged questions. This will give you a real insight into how others invest money and how they think. A must read!