Exciting(?!) changes I’m contemplating for my trades in December 2017

You may know that I limit my security trading activities to once per quarter, or four times per year. This helps me with my discipline when managing my portfolio.

My next trade date is on or about December 15. I have been thinking about what, if any, trades to make at that time.

I’ve come up with two very exciting(?!) changes for my portfolio:

  • re-balancing bonds by purchasing more
  • topping up our holding in OpenText due to its present valuation and to invest some idle cash in one of our TFSAs

Isn’t that exciting?

Well, although I’m being facetious, it actually is kind of exciting for me. The reason: I finally feel like I am in true maintenance mode for our household retirement portfolio. I like the holdings we have (although I continue to look for improvements) and am mostly focusing on keeping our asset allocations in balance with targets.

For many investors I suspect this sounds terribly boring. What, no chasing outsized gains in the latest momentum stock? No short selling or short-term trading. LOL. Not for me.

But, boring can be good. We’re on track, at today’s pace, to exceed our target 7% return this year (at 7.4% as of Sept. 30 and currently forecasting an 8.8% total return by year end if the trend continues). That’s beating the TSX’s return to date of 4.7% (or 2.27% as of Sept. 30) and is being achieved with relatively low risk (less than 50% exposure to equities).

Yep, boring can be good.


Author: Michael


5 thoughts on “Exciting(?!) changes I’m contemplating for my trades in December 2017”

  1. I’ve been wanting to comment on this for a long time, just needed some “free time”.
    Raven (and Michael),

    I believe in the diversification of bonds, but I don’t hold them when I am choosing the investments. One of our accounts is a managed fund (SaskPension) and it is a simple balanced fund, and it does hold bonds. But I don’t. How is that for an opener..

    Our family also has a small Defined Benefit (DB) pension plan that I treat as a bond in our asset allocation.

    In our self-directed investing, we hold mostly cash and fixed-reset preferred shares instead of bonds. This is a deliberate choice over the past 5+ years because of low returns. In no way am I claiming to hold bonds or my weak surrogates at the level of 100-age or a 60/40 equity/bond split. From end 2014, I was approximately 3% Cash, 1% preferred shares, and 4% REITs. As the rising tide lifted all boats, I gradually started to shift these numbers. Currently the numbers are 7% Cash, 7% preferred, and 3% REITs.

    I do believe that an amount of lower-risk assets are helpful. Because if you have the conviction to hold a large equity percentage, then you might also have the conviction to buy in a bear market; not just a correction.

    In my opinion, lower risk assets such as bonds, cash, etc. form the “dry powder” necessary to do this. I was too strongly allocated to equities in 2008/2009 to buy after the cliff. I held our portfolio intact at > 90 % equity allocation. But we wanted to buy; we scrounged for savings and only managed to buy about 3% of assets during the lows; but feel like it was a huge opportunity missed.

    So now, we are deliberately drifting higher in cash, etc. hoping to have the necessary conviction to deploy it this time. Can we all wish together for a bear market before my retirement, while my family is still saving?

    However, there is another side to my thinking. Bucket approach(s) and/or other methodologies for the transition from accumulation to de-accumulation are coming soon to our portfolio. I have read quite a few retirement-oriented asset allocation papers on the Social Science Research Network (SSRN) at https://www.ssrn.com/en/ and financial planning books on topics such as sequence of returns risks and rising equity glide path approaches. Moshe Mivelsky, Wade Pfau, etc. I haven’t decided exactly how to phase into retirement; but everything I read (and the monte carlo simulations I’ve looked at) shows that capital draw down in a bear market at the beginning of retirement is tough to recover from.

    Thus, I plan to work with the general idea of reducing risk in our portfolio transition. The point of retirement will be the point of maximum portfolio pessimism (lowest equity allocation) and then the equity allocation can start climbing again. Thus bringing the long run returns, inflation protection, etc. that equities offer. After all, something has to fund the decades long retirement that we hope to enjoy.

    We might get down to 60-70% equities at that transition point. What a travesty…


    P.S. Great discussion above. Thanks Raven for adding your insights!

    1. Fletcher,

      Thanks for the comment, there is always something to be learned from others.

      Having retired only a few short years ago, i totally understand how you feel about the risk of retiring right at the moment a bear market begins. Even at the time i retired, there were those who suggested that the bull market was long in the tooth and i should stay cash instead of investing my pension cash. After much much research, i came to the conclusion that statistically, i was better off being fully invested. Many people (read vanguard) who are much smarter than me ran all the scenarios proving that dollar cost averaging underperforms lumpsum approach. Effectively trying to time the market by staying in a large cash position, or with underperforming fixed interest assets puts the brakes on performance.

      The same is true for the dry powder approach, holding cash for that “opportunity” means under performing for potentially years, negating any potential short term bargain. You can still use dry powder if you feel compelled, just use someone elses, during 2008, i was 100 percent equities, and felt that there were super bargains out there, so i used my account trading margin to buy….I really did well.

      If your worried that your draw down will have an effect on your future during a down market, I would be more inclined to hold a years worth of cash like assets and adjust your drawdown lower. I keep my drawdown at 2.5% permanently which means the portffolio stays in accumulation mode, so its very unlikely that I will ever have to worry like those drawing 4-5 %.

      If your playing the long game, ie your not dying of something now, you have to invest like Spock. Logically you need to maximize returns by being totally invested all the time and accept that its volatility that drives returns, so we need to stop putting the brakes on in order to avoid short term volatility. This year i will return 22 percent which is pretty average for a bull year, had i been super cautious i could have returned 10 percent which is respectable but if you do the math the difference between both styles after an eight year run is huge. Granted the bear would be harsher on me during an 18 month average bear market but that is ok because i am playing the long-game, i average market like returns or better.

      Michael is correct in not adjusting anything, its more often the right thing to do. If your portfolio is performing well, you will only lower your average returns by converting equities to cash or bonds then back again in order be “safe”. To me there is nothing safer than a big value portfolio.

      Retirement was very challenging time for me, as there is allot of conflicting advice out there, lots of it wrong, or just too general. The draw down ratio is very tricky as its half the equation as it relates to income vs spending. They all can be tweaked a thousand ways, and you have to find the combination that works for you.

      Hope some of this is useful to you.


      1. Raven,

        So many good thoughts in this post, and your previous ones…

        I did laugh a bit at this line: “To me there is nothing safer than a big value portfolio.” Of course, this was also a point where we strongly agree. My wife and I have been saving money for a long time, living under our means, and investing.

        I think the difference between the three of us could be summarized using a sporting analogy. We all have winning teams; you give more weight to offense and Michael gives a higher weight to defense. I am somewhere between the two of you.

        If I were to try and describe it a little more; I would say that I am closer to you than I am to Michael. For example, I do use margin occasionally in order to access opportunities as you mentioned above, but save aggressively to repay it ASAP. Michael and I also have had long running, high quality discussions about gold where we each have contrasting opinions. I am guessing from your discussion points that you are not holding a lot of bullion in your portfolio…

        I can’t ever see myself running a large cash position (say greater than 15%) but likely would be holding approximately 3 years of cash / low risk holdings during the transition. Say 9-10% of assets. For example, some preferred shares (mostly fixed reset) diversified across multiple issuers form part of this slot in our plan.

        However, we will have to save a lot more, mitigate spending significantly, or obtain the 20+ per cent returns you have seen to get to a draw down ration of 2.5%. Our current thoughts are to manage on between 3 and 3.5, retiring in our fifties with a 40-50 year spend plan. 🙂

        The past few years have been good to long run returns; I am tracking (up to end Nov 2017) at around 9.6% for our self-managed assets. We have data for this back to 01 Jan 1998.

        Year to data, I am seeing a 13.8% return. This has also been very consistent over the past 5 years (using data from 01 Jan 2013) with our returns in the 13-14% cumulative range over both the 3 and 5 year reports.

        The rising tide has lifted a lot of boats…

  2. Thanks for providing your portfolio ideas, i really like the displine you apply, which is very much in line with the way I invest.

    My only comment is considering your goal of achieving a calculated risk/reward balance, does increasing your bond allocation really achieve this? Mathematically in the short run it certainly lowers volatilty based on mixing asset classes but in the long run bonds as an asset class statistically tend to have higher volatility than equities. In addition, If you use historical twenty year average rolling returns, bonds underperform equity about 95 percent of the time. The time when bonds do outperform, its only by a small margin. So if your playing the long game, in that you have a 20 or more year time horizon, is it really prudent to increase an asset class which in the long run underperforms equities, and actually has a higher standard deviation? Not to mention that should interest rates start reverting to the mean (increase) you could be at risk of having half your portfolio in the negative. I find among most investors, bonds are mislabeled as being ultra safe, this is a dangerous misconception in the long run. After taxes and inflation, bonds provide little real return right now and as much as bonds make people feel safe, there is no safety in being retired and poor. Dont get me wrong, there is a place for bonds in the investing world, but we should evaluate the class based on long term performance evidence and not the need to satisfy the short term 12 month volatility aversion of equities. I have had to advise a retired friend who was 100 percent in bonds, that he was not nearly as safe as he thought. Personally I would much prefer to have a bunch of bonds returning 15 percent with interest rates on their way down….not the other way around.

    Thanks again.


    1. Hi Raven,

      Thanks for your comment and stopping by. You make some great points in your post that I will try to address here.

      While it may be that bonds underperform equities and may be more volatile in the long run, they serve two purposes for me.

      1. Since I hold to maturity, I know exactly what return to expect and when.

      2. By building a ladder, I can time cash availability for re-balancing or, somewhat soon, for potential partial consumption in the distribution stage of my portfolio (if need be).

      I am moving increasingly to a “bucket strategy” with my portfolio, that will look something like this:

      Bucket #1: 1 -2 years’ income in cash
      Bucket #2: 5 – 7 years’ income in bonds
      Bucket #3: 1 year’s income in gold bullion (insurance)
      Bucket #4: all else in income and growth equities

      Effectively what I am attempting to do is turn my portfolio into a homemade annuity and I am pushing the equity risk out as far as possible in the event of a major market correction followed by a long recovery time (something like what happened in 2008/09). This type of drawdown in the market is especially concerning in the early distribution stage (sequence of returns risk) and I don’t want to be forced to sell assets at fire sale prices.

      As long as I keep cycling my bond ladder and can beat inflation on the yield to maturity, I am increasing my odds of knowing what cash will come in and when while protecting principal value.

      Maturing bonds provide options: re-invest, re-balance or consume (if necessary).

      Regarding rising rates: by cycling through a ladder of bonds I am always purchasing the next swath at higher rates, so can ride them up. I don’t care if the older bonds drop in market value on paper because I will not sell them before they mature, so will get back my expected principle.

      For additional clarity, our bond holdings represent about 33% of our total holdings, not 50%. So this reduces the amount of underperformance you point to.

      Also, I always have the option of “harvesting” some equities as income (capital gains) if that looks to be opportunistic.

      As much as statistics and facts are always important, our situation is such that I don’t really need to maximize performance, I just need to meet our cash flow, income and return objectives with some reasonable level of certainty (i.e., low risk). I don’t mind paying a premium, so to speak, to ensure we have the cash flows we need to retire on.

      Hopefully this all makes sense.

      Cheers and thanks again.


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