What I Did With The $42,000 That Came Into My Retirement Account

by: Dale Roberts

I recently transferred monies that were in cash to my retirement account; I quickly put those funds to work.

For my Canadian holdings, I have a concentrated portfolio of 7 big wide moat dividend payers.

I have recently penned articles suggesting how I could take that concentrated portfolio up to 15 holdings or more.

But as you'll see, I am a creature of habit. Did I miss an opportunity to add greater diversification?

For my RRSP account (think IRA and 401k in the US), I hold a mix of Canadian and US companies along with some Canadian bonds. For the Canadian stocks, please have a read of The Dividend Growth Wide Moat 7 from Canada.

Canadian banking is dominated by the Big 5: Royal Bank of Canada (NYSE:RY), Toronto-Dominion Bank (NYSE:TD), Scotiabank (NYSE:BNS), CIBC (NYSE:CM) and Bank of Montreal (NYSE:BMO).

I hold the Big 3 - TD, Royal and Scotiabank.

The Telco space provides another oligopoly situation; I hold 2 of the big 3 players - BCE (NYSE:BCE) and TELUS (NYSE:TU).

Canada's most dominant pipelines are Enbridge (NYSE:ENB) and TransCanada Corp. (NYSE:TRP). As you may know, Enbridge operates the longest pipeline system on the planet.

For US holdings, I have skimmed 15 of the largest Dividend Achievers (VIG). Please have a read of Buying Dividend Growth Stocks Without Looking. I also have 3 picks by way of Apple (AAPL), BlackRock (BLK) and Berkshire Hathaway (NYSE:BRK.A) (BRK.B). The US holdings are split between my retirement accounts and my wife's retirement accounts. In my personal RRSP account, I hold Apple and BlackRock to go along with several of the Achievers.

Hello Transfer Money

I had some monies in a workplace group plan. From January of 2013 to June of 2018, I was an advisor at Tangerine, Canada's biggest online bank. Tangerine is a division of Scotiabank. It was a matched contribution program, with Tangerine matching a certain portion of my monies. The account creates a tax break and then the funds are allowed to grow tax free. The monies are then taxable in full when I take them out for retirement funding. The account treated me very well; I had the funds in an index-based Balanced Portfolio, and then with the introduction of the Tangerine Dividend Portfolio, those monies went that dividend route.

That said, I did move the monies to cash in preparation of the transfer out process and to have a cash cushion. When I left my full-time job to launch my site and the 'semi retirement' or new life-work stage, I cut my pay to near zero. I did not mind having that cash cushion. With little freelance or blog income, my portfolio (only personal income source) was greatly exposed to market risk. It's possible that one could retire and the next day the markets enter a nasty bear market - see 2000, or 2008.

But certainly my cautious timing cost me. Canadian and US markets are up over 8% or more during my 'waiting period'. I am mostly buying at higher prices, save for Scotiabank. Does any kind of 'market timing' ever work? We'd always have to answer NO, because markets mostly go up.

All said, as I am starting to earn some income from blogging and freelance writing, I was comfortable enough to move that modest cash pile to a mix of stocks and Canadian bonds.

Where did that $42,000 go?

I have recently penned a few articles on how I would add to the wide moat portfolio. I could certainly take advantage of the Canadian rails of Canadian National Railway Co. (CNI) and Canadian Pacific Railway (CP). There's a few grocers that dominate the space and there's the wonderful Canadian turned international success story known as Alimentation Couche-Tard (OTCPK:ANCUF). And there are some wonderful utilities that offer attractive dividends and dividend growth histories. There's the Canadian success story that gets a lot of great press on Seeking Alpha - Brookfield Asset Management (BAM). For that latest in the series of articles, please have a read of We're Going Grocery Shopping For The Canadian Wide Moat Portfolio.

I'll admit that when I was writing those articles I would often talk myself into the rationale for each holding. They offered either a wide moat or a business success story that was 'repeatable' and easy to understand. But in the end, I ignored the opportunity to add greater diversification and I stuck with what was working - my Canadian Wide Moat 7. I am a creature of habit. I added some monies to my broad-based bond ETF and then the rest went into those 7 Canadian companies.

I have over-weighted just slightly to the telcos and to TD bank. Here's my current weighting of those 7 companies for my total RRSP account, including bonds and US holdings.

  • Bell 10.5%
  • Telus 10.2%
  • TD 9.3%
  • Scotiabank 8.6%
  • Enbridge 8.2%
  • Royal Bank 8.2%
  • TransCanada 8.0%

And with those added monies, I increased my annual dividend payments (my personal pension) by about $2,000 annual. Will my portfolio be able to continue to deliver 6-8% annual income increases is yet to be seen. And certainly a recession would have something to say about that.

And yes, I have a terrible home bias. I perhaps suffer from a personal bias and a recency bias. Those companies have treated me well. And while I do not expose my wife's accounts to the same concentration risk, my concentrated portfolio has outperformed her Vanguard Canadian High Dividend Yield ETF (ticker VDY). And while VDY suffered a dividend reduction in 2015-2016, my 7 all continued with healthy dividend increases.

Based on an initial $10,000 investment, thanks to portfoliovisualizer.com.

Portfolio 1 is the Wide Moat 7

Portfolio 2 is VDY

I will move some US dollars available to a US holding or two. And to counter my home country bias, my wife's accounts have more weighting to the US compared to Canada. She will likely continue to work for 4-5 years.

A missed opportunity?

We have to acknowledge that I have incredible concentration risks. There are sector risks and company risks. The companies and managements have to continue to execute. I am trusting the oligopoly or wide moat scenarios. Don't try this at home.

Did I miss an opportunity to diversify, even modestly? Or was it prudent to stick with my tried and true? Fire away, I can take it.

Author's note: Thanks for reading. Please always know and invest within your risk tolerance level. Always know all tax implications and consequences. If you liked this article, please hit that "Like" button. Hit "Follow" to receive notices of future articles.

Disclosure: I am/we are long BNS, TD, RY, AAPL, BCE, TU, ENB, TRP, CVS, WBA, MSFT, MMM, CL, JNJ, QCOM, MDT, BRK.B, ABT, BLK, WMT. 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.