- It is time to 'spring-clean' the portfolio.
- Getting holdings into their ideal asset location is proving more challenging than I expected.
- Current portfolio after recent changes.
- Simple tracking sheets included for readers to reference.
Ahh, the magic of spring. The snow melts and thoughts of gardening sprout into my mind. But before those thoughts can begin to take root, my part-time tax related job explodes into fifty-plus hour weeks. Article writing is completely set aside, cooking and housekeeping deteriorate, and my social life grinds to a halt. I love it. I really enjoy the interaction with my varied clients, teaching them to use the benefits available to them to save tax dollars, encouraging them to use tax advantaged accounts to save and invest, and, of course, the puzzle-like nature of individual tax situations.
Though my portfolio and the markets receive little of my attention, progress is still being made. Spring usually means several important things for my portfolio. First, money flows into the portfolio like no other time of the year - the extra income and the tax refund joining the regular contributions. Second, it is portfolio spring-cleaning time. I carefully made a potential portfolio action list, before tax season sprung onto my life. Over the last six months, I have been trying to create a leaner, cleaner, more fully dividend-growth oriented portfolio, with just a side of growth. I wanted this implemented before the seemingly annual 'spring melt' in the markets.
On December 28, 2013, John Heinzl wrote in the Globe and Mail:
What I've come to understand, based on my interactions with readers on both ends of the spectrum, (new or experienced self-directed investors) is that people start out believing that investing is terribly difficult, but eventually realize that it's actually quite simple... Investors who write to me with personal success stories are, almost invariably, buy-and-hold investors...They are the first to admit that trading skill had nothing to do with their results. Rather they bought boring, conservative companies...and let time take care of the rest. It's when investors try to cheat time that they get into trouble.
My goal is to create a growing income stream for a future retirement, and I require my actions and holdings to be working towards this end by either creating income or growing share price in order to have more to allocate to income generation in the future. Ideally of course, one receives both from their holdings. My target is to have 90% of my portfolio in DGI stocks, 10% into growth stocks.
I am starting to see investing is quite simple. I formerly traded and the statement above "It's when investors try to cheat time that they get into trouble." resonates deeply with me. I felt great fear that starting from scratch at age 42 would not allow us a sufficient retirement - much less the financial freedom to live off the dividends and never use the principle. Fortunately, my trading career ended and I began transitioning to a dividend-growth portfolio before I ran into trouble. Now I know that, with diligence, our retirement will be secure.
My primary goals this quarter have been (A) to sell off most of the positions purchased exclusively for short term gains, and (B) get the gains safely tucked into long-term partnerships with quality companies, located in the best advantaged accounts. All of my recent actions have been with these two goals in mind.
I started with one small registered retirement account. Three years later, the portfolio has evolved to span five accounts with a balance fifteen times greater. I do not claim to be an investing genius; it is mostly contributions. Learning about ideal asset location has been of great value to me. I expect the future payoff of using tax advantaged accounts wisely to be significant - but implementing the knowledge has proven tricky and continuously frustrating. Some accounts are contributed to regularly, while others are left to grow only through dividend payments. Being a Canadian investor complicates things further, as I wish to hold US equities only in RSP's to avoid the withholding tax. Therefore, where the available cash is located often significantly impacts purchase decisions and substantially affects the ability to take advantage of opportunities that the market offers. Some of my stocks are not yet in their ideal location and I hope to gradually move them as I have available cash in their target locations. I only wish it was as simple as a sell-buy action.
Two of my actions this quarter exemplify these principles:
Sold Western Union (NYSE:WU). Bought more General Electric (NYSE:GE) and initiated a position in Procter and Gamble (NYSE:PG). My purpose for buying WU was not as a long term hold, but a trade supported by a nice dividend. I held on much longer than I initially planned, and even missed selling during the October highs. In the end, I had exactly what I had hoped for - a short term gain to reinvest into long-term holds, so there is nothing to complain about. I had a 20% gain and divided the proceeds between GE & PG.
Sold Goldcorp (NYSE:GG) or (TSE:G). Bought RioCan REIT (OTCPK:RIOCF) or (TSE:REI.UN) & H&R REIT (OTCPK:HRUFF) or (TSE:HR.UN). This action actually had little to do with Goldcorp itself and much more to do with asset location. I had decided a small, separate, registered retirement account would be the long-term home for my REITs and was waiting for the opportunity to sell my small position in Goldcorp and use those funds to buy more of these two REITs which I already owned within it. During February and March, the REITs began to appreciate. With the share price increases, soon my happily DRIPping REITs would, unfortunately, no longer be able to buy a new share each month. Mid-March, Goldcorp began to stall in its stellar climb and was sold in time to buy more of both H&R and RioCan before their next ex-dividend dates, allowing DRIPping to continue. I fully expect these REITs to remain in the account until retirement and beyond. Essentially, their ability to continue growth by DRIPping became more important to me than possible capital gain growth with Goldcorp.
My purpose for Goldcorp was never a long-term hold. I bought it as a trade. It surprised seemingly everyone by going south quickly and deeply. I intended to average down, but there always seemed to be something else clamoring for my available cash and I never did. In the end, I took a very small loss (just a few percent, totaling under $400) to buy the REITs in the right account at what I felt was the right time. Time will tell, but this action certainly reflects my goal of rolling trades over into long-term holds. If Goldcorp retraces from here, I may buy back in, but in a different account. Goldcorp has been one of my favorite and most profitable trading stocks over the past three years.
% OF PORTFOLIO
Canadian National Railway
Crescent Point Energy
Johnson & Johnson
Procter & Gamble
For the first time, I do not have specific plans for the cash entering the portfolio over the next month (approximately 10% of the total portfolio value). There are still a few names purchased for capital gains only that I would like to sell; Agrium, WisdomTree, and I would like to trim a little of Inter Pipeline just to make it more comparable to the others size-wise. My watchlist has fewer than ten names, the least ever, all mentioned in other articles, but I am not sure any of them are yet ripe for the picking. I am also looking to purchase more of everything within the portfolio, excepting those three on the now very short sell list, but I do not have a clear direction at this time, and will wait for opportunities.
I am increasingly pleased with the contents and allocation of the portfolio, but still frustrated with the location of certain assets. Until about six months ago, companies were neatly held where they had originally been purchased. Adjusted Cost Base and Adjusted Cost Base Per Share was obviously displayed at my brokerage, requiring no tracking or calculating on my part. The paltry differences between USD versus CAD, made estimation close enough for my use. Both factors have completely changed. The widening conversion rates and multiple purchases made while the Canadian dollar dropped have made currency differences significant. My efforts at transitioning holdings to their permanent account homes has part positions trailing all over the accounts and nothing is obvious anymore. A straightforward, suitable tracking method was finally needed.
As I write for newer investors, have had a request, and have greatly appreciated other self-directed investors here posting their tracking tools (most notably Eddie Herring's brilliant dividend sheet, which I refer to continually), I am including a couple of samples of my simple method.
There are a number of companies that I expect to partner with for decades. For these companies the tracking sheet is simplified, focusing only on purchases, including DRIPs. This is also useful for registered accounts where selling does not trigger a taxable event. H&R REIT is my example here for the Activity Record.
A more comprehensive version is this example using Enbridge. The left area shows the same information as the above Activity Record. The right side, the Disposition History, is exactly what you need to report for capital gains or losses for tax purposes.
I have no need, nor any intention of attempting to cheat time anymore. With 20 years until retirement, modest consistent growth will get me to my goals.
Disclosure: I am long F, JNJ, MCD, KO, PG, UL, GIS, WMT, WAG, CNR, ENB, IPPLF, TGH, GE, CPG, CVX, CPXGF, TD, RY, BNS, HRUFF, RIOCF, BCE, TU, V, AFL, BLK, WETF, AGU. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.