All posts by Pat McKeough

Choosing ETFs: the best ones are diversified and have low MERs

Posted By Pat McKeough | June 1, 2017

If you want to include the best ETF investments in your portfolio, then it’s important to consider a variety of components. That’s because all Exchange-Traded Funds aren’t created equal

ETFs are one of the most popular and most benign investing innovations of our time: and the best ETF investments can be great low-fee ways to hold shares in multiple companies with a single investment.

The best ETFs practice “passive” fund management

The best ETFs practice “passive” fund management, in contrast to the “active” management that conventional mutual funds or some new ETFs provide at much higher costs. Traditional ETFs stick with this passive management: they follow the lead of the sponsor of the index (for example, Standard & Poors).

Sponsors of stock indexes do from time to time change the stocks that make up the index, but generally only when the market weighting of stocks change. They don’t attempt to pick and choose which stocks they think have the best prospects.

This traditional, passive style also keeps turnover very low, and that in turn keeps trading costs for your ETF investments down.

We think you should stick with “traditional” ETFs.

The best ETF investments have lower MERs

The MERs (Management Expense Ratios) are generally much lower on ETFs than on conventional mutual funds. Continue Reading…

How to find the best high-dividend-yield ETFs

Posted By Pat McKeough | May 24, 2017

High-dividend-yield ETFs can be great additions to a portfolio: here are tips that will help you find the best ones

Here’s a look at high dividend yield ETFs and our advice on finding the best ones for your diversified portfolio.

4 ways to invest in profitable high-dividend-yield ETFs

Look for ETFs that hold companies with long-term success and a long history of paying dividends. These companies are the most likely to keep paying and increasing their dividends.
The current financial health of each company in the ETF. If a company is doing well, has done so consistently, and shows signs of growth, these factors are indicative of stocks that will keep paying a dividend.
How does the company manage its relationships with investors? If there is a favourable relationship, and the company fits the other qualifications listed above, it may be a good dividend-paying stock to invest in.
Note the competition. Look for ETFs with companies with a strong hold on a growing market and a unique product or service that cuts its competition.

High-dividend-yield stocks are a key part of a successful portfolio but at the same time they can give investors a false sense of security. That’s because some investors tend to think that all high-dividend-yield stocks are safe.

When a high dividend yield means danger

A high dividend yield may be a danger sign. It may mean investors are selling and pushing the price down. A falling share price makes a stock’s yield goes up (because you still use the latest dividend payment as the numerator to calculate yield — but the denominator, the price, has dropped). But when a stock does cut or halt its dividend, its yield collapses.

The best ETF investments practice “passive” fund management

How to create a winning retirement income strategy

Posted By Pat McKeough | April 24, 2017

A successful retirement begins with a successful retirement income strategy.

One of the things that investors of all ages fear is that they won’t have a good financial plan in place so that they have enough retirement income to live on once they’ve stopped working.

Here are some ways to ease that anxiety:

In retirement, try to even out (equalize) your income with your spouse’s income, to lower overall taxes. Here’s how:

1.) Have the higher income spouse pay the household bills

The easiest way to even out income between two spouses is to have the higher-income spouse pay the mortgage, grocery bills, medical costs, insurance and other non-deductible costs of family life.

2.) Set up a spousal RRSP

Registered retirement savings plans, or RRSPs, are a form of tax-deferred savings plan designed to help investors save for retirement. RRSP contributions are tax deductible, and the investments grow tax-free.

3.) Pay interest on your spouse’s investment loans

If the lower-income spouse takes out an investment loan from a third party, such as a bank, the higher-income spouse can pay the interest on that loan.

RRIFs are a great long-term retirement income strategy

What pessimists may say about top Canadian bank stocks

Posted By Pat McKeough | March 13, 2017

The big Canadian banks in the heart of downtown Toronto

We’ve recommended buying the five top Canadian bank stocks since the 1970s, but not everyone has agreed with that advice.

Canadian banks have gone through periodic and sometimes lengthy slumps, like any other stock group. They occasionally make costly management errors. On rare occasions, they have suffered from adverse regulatory decisions.

This is what pessimistic investors might say about top Canadian bank investments. But because these stocks have grown, paid high dividends and have generally been available at highly attractive prices, they’ve provided well-above average investment returns for decades.

Investor worry and the banks

Some investors fear the banks will lose out to “fintech” (upstart financial technologies, comparable perhaps to Uber or AirBnB). Or they wonder if the banks will get caught unawares when interest rates make their long-awaited upward move.

Our view is that the banks had a long time to prepare for the inevitable rise in interest rates, and the inevitable coming of fintech competition. In fact, they will probably wind up prospering in fintech, if not dominating it, as they did in stock brokerage, insurance and other financial areas that they have entered in the past few decades.

On the whole, investors have underestimated top Canadian bank investments for as long as I’ve been in the investment business. As a result, these stocks have often traded at attractive share prices. Because they were growing, and cheaper in many respects than other stocks, they gave conservative Canadian investors a near-ideal combination of pluses: above-average dividend yields and records; low-to-moderate ratios of per share price-to-earnings; and above-average long-term capital gains.

Look for top Canadian bank stocks with consistent dividends

4 key factors and 3 tips to consider when investing for retirement

Posted By Pat McKeough | January 31, 2017

We recommend that you base your investing for retirement on a sound financial plan. Here are the four key factors that your plan should address to ensure that your retirement investing generates enough income in retirement:

1.) How much you expect to save prior to retirement;

2.) The return you expect on your savings;

3.) How much of that return you’ll have left after taxes;

4.) How much retirement income you’ll need once you’ve left the workforce.

Stick with conservative estimates to account for unforeseen setbacks

As for the return you expect from investing for retirement, it’s best to aim low. If you invest in bonds, assume you will earn the current yield; don’t assume you can make money trading in bonds.

Over long periods, the total return on a well-diversified portfolio of high-quality stocks runs to as much as 10%, or around 7.5% after inflation. Aim lower in your retirement planning —5% a year, say — to allow for unforeseeable problems and setbacks.

Above all, it’s important to remember that while finances are important, the happiest retirees are those who stay busy. You can do that with travel, golf or sailing. But volunteering, or working part-time at something you enjoy, can work just as well.

One thing we encourage all investors to do is perform a detailed study of how you spend your money now. Then, you analyze your findings to see what personal expenses you can cut or eliminate. This too can have fringe benefits, especially if it helps you break unhealthy habits. You may be surprised at how much you’re spending and how much more you could be saving for retirement.

Dollar-cost averaging brings automatic profits