Archives: Income Portfolio

Below are links to the archives to the Sample Income Portfolio and summaries from prior quarters.

When investing we are always having to deal with future unknown events and outcomes, but with the power of hindsight we can often gain a greater understanding of an investment approach that can aid us with future investment decisions. By reviewing the portfolio and summaries from past quarters, you can judge for yourself if the discussions and concerns were relevant or not, at the time they were written.

Note: The following links to the archives are intended to provide practical examples of the application of the InvestingForMe financial and investment management process. They are not investment recommendations or solicitations to invest.

Portfolio Review: September 30, 2017

There were no changes made during the quarter and no commentary for the period.

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Portfolio Review: June 30, 2017

The Sample Income Portfolio began with an investment of $100,000 in bonds, GICs and preferred shares in June 2010.

Between July 1st, 2016 and June 30th, 2017, the portfolio increased in value by $3,595.38. The increase in value was attributed to the receipt of $4,682.65 in dividends and interest income, which was partially offset by a $1,087.27 decline in the market value of the bonds and preferred shares.

In it's sixth year, the portfolio earned a 2.78% rate of return and it has averaged a 4.18% rate of return over the last 7 years. 

Comparison Note: For the 12 months ending June 30, 2017, the S&P/TSX Composite Index had a positive 6.92% rate of return and the S&P/TSX Composite Total Return Index (which includes all dividends and distributions paid during the period) gave investors a positive 8.76% rate of return.

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Portfolio Review: March 31, 2017

During this quarter, we added an investment in each of the following;

  • Purchased $12,000 Maturity/Par Value of a Bank of Nova Scotia Bond, Yielding: 2.62%,
  • Purchased $12,000 Maturity/Par Value of a Telus Corp. Bond, Yielding: 2.27%, and
  • Purchased $10,000 Guaranteed Investment Certificate from Coast Capital Savings Credit Union, Interest Rate = 1.75% Annual

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Portfolio Review: December 31, 2016

During the quarter, the Sample Income Portfolio had a Coastal Community Credit Union Guaranteed Investment Certificate mature. The proceeds and interest payment were deposited and held in the portfolio's cash balance pending re-investment.

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Portfolio Review: September 30, 2016

During this quarter, we added an investment in each of the following;

  • Purchased $12,000 Par Value of a 2.87% bond issued by Empire Life Insurance, maturing on May 31, 2023, and
  • Purchased 210 preferred shares issued by Westcoast Energy paying 5.20%, Minimum, Rate-Reset.

 

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Portfolio Review: June 30, 2016

For the 12 months ending June 30, 2016, the Sample Income portfolio increased in value by $2,932.78 - for a positive 2.32% rate of return. 

For the same period, the S&P/TSX Composite Index had a negative 3.36% rate of return and the S&P/TSX Composite Total Return Index (which includes all dividends and distributions paid during the period) gave investors a negative 2.27% rate of return.

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Portfolio Review: March 31, 2016

There were no changes made during the quarter and no commentary for the period.

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Portfolio Review: December 31, 2015

There were no changes made during the quarter and no commentary for the period.

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Portfolio Review: September 30, 2015

There were no changes made during the quarter and no commentary for the period.

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Portfolio Review: June 30, 2015

In June, the portfolio had a HSBC Bank Guaranteed Investment Certificate mature. The proceeds, principal and interest, were added to the portfolio's cash balance. In the coming months, we will be looking for suitable investments to buy.

For the 12 months ending June 30, 2015, the Sample Income portfolio increased in value by $4,821.21 - for a positive 3.96% rate of return. 

For the same period, the S&P/TSX Composite Index had a negative 3.913% rate of return and the S&P/TSX Composite Total Return Index (which includes all dividends and distributions paid during the period) gave investors a negative 1.85% rate of return.

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Portfolio Review: March 31, 2015

In March the portfolio had it's TD Bank preferred share investment redeemed by the bank at $25.00 per share. The proceeds, plus a small amount of cash, were used to buy preferred shares issued by Canadian Utilities.

 

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Portfolio Review: December 31, 2014

Our sample Income Investment portfolio ended 2014 with a $6,216.65, or 5.26% increase for the year, which exceeded our target rate of return for the portfolio. In the coming quarters we continue to expect,

  • Interest rates to remain under downward pressure. We don't expect inflation and interest rates to rise anytime soon.
  • The price of oil to remain under downward pressure as the world adjusts to abundant supplies and weak growth in demand. In the coming months, we expect an agreement between Iran and western powers to be concluded and this will bring Iranian oil back into world markets - further depressing oil prices in North America and Europe.
  • We expect the steep decline in oil prices to have a negative impact on the Canadian economy and those of the energy producing provinces.
  • If oil prices remain at current levels, or go lower, for a prolonged period, the earnings of our Canadian banks will be negatively impacted.
  • We are watching the Greek Elections with great interest. Social and economic conditions are so bad in Greece that they may be the first in a series of European states to elect an anti-Euro government. The elections might create a whole new level of uncertainty to the European arena.

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Portfolio Review: September 30, 2014

There were no changes made during the quarter and no commentary for the period.

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Portfolio Review: June 30, 2014

Our IFM Sample Income Portfolio just completed its 4th year of operation on June 30, 2013, and so now seems like a good time to review its performance to date and discuss our next options in terms of where the market looks like it’s headed on the basis of past market cycles.

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Portfolio Review: March 31, 2014

Currently stock markets around the world have pushed past previous market peaks and continue to push for new highs. History demonstrates that as stock markets break to new highs investors are best served by focusing on their long-term asset allocation and re-balancing frequently. Investors that allow greed to dictate their asset allocation often suffer outsized investment losses when stock markets eventually peak out.

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Portfolio Review: December 31, 2013

There were no changes made during the quarter and no commentary for the period.

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Portfolio Review: September 30, 2013

There were three changes made to the portfolio;

  1. Fortis Inc. redeemed the portfolio’s investment in the Series C, preferred shares, on July 10, 2013 at $25.00, plus accrued dividends of $0.1456, per share.
  2. To replace the redeemed preferred shares, the portfolio purchased 210 perpetual preferred shares issued by Power Corporation at a price of $24.73 each. These shares provide an annual yield equal to 5.66%.
  3. Using most of the portfolio’s accumulated income, the portfolio invested in a $6,000 par value, bond issued by TMX Group Limited. The bond will mature on October 3, 2018 and pays a semi-annual yield equal to 3.096%. This bond fills a gap in the portfolio’s fixed income maturity ladder.

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Portfolio Review: Third Year Complete - June 30, 2013

The portfolio completed its 3rd year of operation on June 30, 2013.

The portfolio’s generated investment returns of

  • + 0.369% in the second quarter of 2013
  • + 2.74% in the 12-month period ending June 30, 2013 and
  • + 5.48% annually since its inception.

For the 12-month period, ending June 30, 2013, the portfolio’s earnings were generated by

  • $4,322.22 in interest and dividend income and a
  • $1,219.60 decline in the investment values.

The portfolio began the same 12-month period with a market value of $113,332.09 and it finished with a market value of $116,434.71.

The income portfolio’s current market value ($116,434.71) finished the 12-month period above the upper level of its benchmark ($114,116.00), but well above the lower benchmark level ($112,486.00).

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Bank of Nova Scotia 3.05% GIC Maturity - June 21, 2013

Each sample investment portfolio held a Bank of Nova Scotia GIC maturing on June 21, 2013. Both the GIC’s principal and final interest payment were credited to each portfolio’s account cash balance.

The GIC was originally purchased on June 21, 2010 as part of our initial bond maturity schedule – this GIC represented the 3rd year of a maturity schedule/ladder that ranged from 1 to 9 years. (Our original 9-year maturity is now our 6-year maturity, yielding 4.16%.)

At the time of purchase, a 3-year GIC offered a much better yield to maturity than any comparable regular bond with the same maturity.

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Portfolio Review - March 31, 2013

No written review for this quarter.

Our thoughts and concerns have not deviated much from those outlined in our December 2012 review. We expect

  • The rate of inflation to remain low
  • Interest rates to remain near historical lows as governments continue to provide liquidity to the financial system and consumers continue to focus on debt reduction
  • Economies to continue struggling with weak growth (and in some countries negative growth)
  • Stock Markets will continue to move higher as the peak in the financial crisis falls further behind us and central banks focus on promoting easy money and economic growth.
  • Corporate earnings growth to continue to slow. 

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Portfolio Review - December 31, 2012

Even though we believe financial and economic cycles are unknowable in advance, we still need to make certain assumptions about future out comes and cycles. With this in mind, below are a few of our investment assumptions.

  • Yield Curves have been flattening and dropping to lower levels for the past 4 years suggesting economies are slowing and, as in the case of a number of large European countries, on the verge of recession.
  • Governments in the developed economies will continue to struggle with operating deficits and rising debt levels.
  • Taxation – corporate and individual, will increase over the next few years as governments struggle with deficits and the diminishing returns from spending/austerity cuts.
  • Financial markets around the world are enjoying the calm that comes from having survived the worst of the financial crisis, which appears to have peaked in 2012. Time will tell if this is simply the transition phase to full economic recovery (as the market currently expects) or into a smoldering economic crisis. – Note: We are still uncertain about the economic recovery aspect, thus, we continue to remain defensive in the portfolio’s asset allocation.

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Portfolio Review - September 30, 2012

In the past quarter, the portfolio’s value was impacted by the following changes in market values

  • Bonds and preferred shares increased by $472.47

  • Deposits of interest and dividend income added $577.33

  • Accrued Discount Bond interest added $31.22.

In addition, the sample portfolio ended the quarter with 100% invested in cash equivalent and fixed income investments.

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Portfolio Review: Second Year Complete - June 30, 2012

Within the portfolio, we continue to monitor the overall exposure to risk. With reference to the bonds held, we are closely watching the market values for the General Electric Capital Canada and the Bank of Nova Scotia bonds for any indication that investors are becoming more risk adverse and shifting out of corporate bonds and into government bonds. At present, this has not occurred. We continue to believe Canadian interest rates will remain at current levels and possibly move lower in the foreseeable future, so rising interest rates are not viewed as an immediate risk for the bonds and preferred shares held in the portfolio.

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Portfolio Review - March 31, 2012

Inflation Fears: There continues to be a lot of chatter about the threat of inflation, mainly due to the massive expansion of liquidity by governments. This seems to be the only argument used to support the argument for inflation. The growing economic weakness in Europe and China do not support this fear. In fact, if it were not for the recent 36% jump in the price of oil, the official inflation numbers would certainly be much lower and in some instances possible indicating a deflationary direction. Elevated levels of long-term unemployment (Nearly half of the unemployed in the U.S. have been out of work for six months or longer. In the past, corresponding unemployment duration was only 10 weeks.), low Manufacturing Capacity Utilization Rates, the chronically low velocity of money within world economies and the continuing uncertainty in Europe (as evidenced by the weekly government announcements of bail-outs, bank stress-tests, financial firewalls, etc.) are all helping to keep inflation at bay.

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Portfolio Review - December 31, 2011

Printing Money: Government Liquidity is no longer a temporary measure, but has now become a permanent part of the financial, economic and investing landscape. Unlike many investors, we do not view the governments liquidity injections as actually printing money, primarily because the liquidity is a form of credit manipulation rather than the injection of paper dollars into the hands of consumers, which “printing money” implies and assumes. Credit manipulation and printing money are separate activities, each generating different out comes and side affects. Quantitative Easing, government loans and guarantees, etc. were never intended for consumers and the economy. These efforts are focused on bolstering the balance sheets of banks and corporations in the face of declining asset values (mortgages, sovereign and corporate bonds, etc.).

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Portfolio Changes: Province of Ontario Bond Matures - December 1, 2011

The sample portfolio has a Province of Ontario Discount Bond, in the amount of $10,309.00, maturing on December 2, 2011. We have allocated the maturity proceeds into three individual investments as follows...

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Portfolio Review - September 30, 2011

In the strongest economies, persistently low interest rates may help borrowers, but they are beginning to negatively affect the profits of lenders and insurance companies, they are increasing the funding deficits for pension plans and continue to hurt savers and those heading into retirement. With mortgage and lending rates at historic lows, (in the United States, now reaching 4.01%) the financial incentive for lenders continues to decline (Why would a lender take on the risks of a 30-year loan that only has gross revenue of 4.0%?). At the same time, pension plans are experiencing increasing deficits in pension funding. Most pension plans require investment a rate of return above 5.0% in order to achieve their funding requirements and with long-term interest rates at current levels pension plans are being squeezed. Finally, if you are a saver or are in retirement, you know first hand how your investment income continues to suffer in this declining interest rate environment.

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Portfolio Review: First Year Complete - June 30, 2011

Sovereign bond markets appear to have broken into two different camps – bonds of financially stressed countries and all other sovereign bonds. This quarter the 10-year bond yields for Canada(3.08%), the United States(3.12%), Germany(3.02%), France(3.30%), United Kingdom(3.75%) and Japan(1.20%) remained near their lows, while the 10-year yields on Greek(16.81%), Irish(12.11%), Portuguese(11.68%), Spanish(5.39%) and Italian(4.85%) bonds rose. The bond markets appear to be losing confidence in the guarantees offered by world organizations like the ECB and IMF. If the bond market is losing confidence in these agency guarantees, then it may be an indication that efforts to stop the financial deterioration may be losing credibility.

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Portfolio Review - March 31, 2011

European and Irish sovereign credit concerns continue with larger government agencies and central banks once again injecting additional taxpayer capital. The credit difficulties in Greece, Ireland and Portugal were overshadowed by the turmoil in the Middle East and the disasters in Japan, during the quarter. The bond markets have pushed the bond yields for these three sovereign states to new highs, indicating that their financial problems have not been resolved.

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Portfolio Review - December 31, 2010

European and Irish sovereign credit concerns continue to make headlines with larger government agencies and central banks once again injecting additional taxpayer capital. The lender of last resort now appears to be the largest countries as these appear to have the greater borrowing capacity. These actions continue to be necessary as the financial system continues to work its' way through a credit contraction cycle. In the United States, the Federal Reserve and Treasury Dept. announced another round of Quantitative Easing (QE) that will last until June 30, 2011.

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Portfolio Review - September 30, 2010

We continue to feel Canadian investors should remain cautious with a hopeful bias. One of the casualties of the financial crisis has been the disconnect and divergence between stock markets and the underlying fundamentals - unemployment, bankruptcies, GAPP earnings, etc. This may be due to the increased difficulty in analysing corporate balance sheets and various economic indicators. Sock markets no longer look to the economy for their 'direction', but rather government policy announcements and the central banks' continued gift of 'free money' for the world's financial systems. As a result, the stock markets are driven by technical trading - following the latest money flows with a focus on specific investment themes- commodities and higher-risk assets.

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Starting Portfolio Review - June 30, 2010

The following Sample Income Portfolio was started on June 21, 2010 with $100,000.00 invested. All interest and dividend income received is credited to the account and maintained as a cash balance. The income is assumed to be retained and reinvested by the portfolio, as per the Investment Policy Statement (IPS).

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