Income investing in 2018. For those who like to ‘get paid’.

I recently had a look at the performance of the model portfolios on Cut The Crap Investing.

Here’s a look at the Balanced Model ETF portfolios, Cut The Crap Investing ETF Portfolios. Why They Outperformed the Vanguard Models in 2018. The CTCI models also outperformed (meaning they held up a little better) compared to the Canadian Couch Potato models as well. The subtleties in asset allocation can make a modest difference year to year, and a meaningful difference over longer periods.

On that theme and from that Couch Potato link you’ll see that the Tangerine Portfolios held up just as well as the CCP ETF models, even though the Tangerine Index-Based Mutual Funds come with a 1.07% MER, or Management Expense Ratio. Also there are no fees for when you buy or sell the Tangerine offerings, a self-directed ETF’er would likely have trading costs and perhaps annual discount brokerage maintenance fees.

Differences in asset allocation can undo a small or modest fee handicap. 

There is much to learn from this as we continue to examine the Canadian Robo Advisors. They all offer wonderful platforms and sensible model portfolios. But they are all quite unique; it is not the sometimes subtle difference in fees that will determine the most suitable ‘Robo’ for any given investor or situation. The asset allocation and tax efficiency will drive the ‘best Robo for you’ bus. And above the investments and fees will be your personal financial plan and investor behaviour.

All Stock and All Dividends 

I also had a look at the Growth Portfolios, here’s The All-Stock Model ETF Portfolios – 2018 Review.

And here’s Dividend Investing in 2018. From Big Juicy Dividends to those Noble Aristocrats.

The Income Approach. For Those Who Like To Get Paid

Many investors like portfolio income. They like to see the dividends and other income pour into the portfolio. There’s a comfort level that arrives with those income ‘cheques’. Many retires and near retirees like to create income portfolios or income-heavy portfolios. My advice would be that if you’re in the accumulation stage, skip the income approach and build the portfolio that will deliver the greatest total returns. What will determine your retirement readiness is ‘how much you got?’. More monies will then create more income.

All said, many investors do seek income, hence the Greater Income Portfolio on CTCI. I would always suggest that we curb our enthusiasm for income chasing. Greater income can also bring greater risks at times. I think and hope this is a sensible mix; you might sprinkle in some other assets as I will outline below.

greater inccome portfolio snip total

At the core of this portfolio is US and Canadian High Dividend Yield funds and the REIT offering. This should offer some solid long-term total return potential and growing income from the dividend funds. Here is the 2018 returns for those funds.

  • XDIV down -10%
  • XDU up 5.85%
  • XRE up 5.76%

In equal-weight fashion that core equity mix would have delivered a modest .32% positive total return. Yes we can call that flat for the year.

Bonds and Preferred Shares

  • XHB up .26%
  • CPD down -8.4%

Bond and Preferred Shares at 40% of the portfolio would have delivered a negative -1.6% total return. The portfolio in total return fashion would have been relatively flat, down by some -1.2% for the year.

What about the portfolio income? 

Here are the trailing 2018 yields, with income reinvestment.

  • XDIV Canadian Dividends 5.2%
  • XDU US Dividends 2.65%
  • XRE Real Estate 5%
  • XHB Hybrid Bonds 4.37%
  • CPD Preferred Shares 5.1%

The portfolio would have delivered a total yield in the area of 4.15%. That’s not bad, but not head-turning either.

An income investor might have also turned to BMOs line of ETFs for some income-juicing ideas.

bmo income etfs

The covered call products would have allowed an investor to shade in a few funds and boost the Income Portfolio yield to well above 4.5% and approaching 5% depending on how much they might want to ‘juice’ that income.

BMO also offers an all-in-one multi income asset fund, BMO Monthly Income. As per the name investors are paid on a monthly basis. The yield in 2018 was 4.61%. That fund was down by just over 2% in 2018 on a total return basis. Here are the assets.

bmo monthly income

From inception BMO Monthly Income has delivered 4.6% annual.

Once again this approach can deliver generous income, but will likely under perform simple Balanced and Balanced Portfolio total returns. That’s why I’ve included that Dividend Growth plus REIT core for that total return potential in the CTCI Greater Income Portfolio.

Using Vanguard High Dividend Yield proxies of VDY (Canadian) and VYM (US) we can run a comparison of CTCI vs BMO Monthly Income, from inception of VDY. The iShares High Dividend indices are only available from inception, 2017.

Portfolio 1 is the CTCI Greater Income portfolio.

Portfolio 2 is BMO Monthly Income.

The chart is courtesy of The period is December of 2012 to end of 2018. We the CTCI model delivering on some ‘better’ and significant total return potential.

ctci income vs bmo

While many of us like portfolio income, it’s important to keep an eye on that total return potential whether we are in the accumulation stage or in the decumulation retirement stage.

Thanks for reading. Please always invest within your risk tolerance level. Do the research to find out ‘what goes where’ for greater tax efficiency and preferential treatment of foreign income.

Spread the word (sharing is caring) kindly share this post on Twitter, LinkedIn and Facebook. You’ll find the follow Cut The Crap Investing button at the very bottom of this page.

Feel free to reach out with questions and ideas.


2 thoughts

  1. Hey Dale,
    Great analysis as always! Speaking of total returns have you any thoughts on using Horizon’s suite of TRI ETFs for those who may be trying to avoid tax bracket creep, and possible OAS clawback, at a time of drawing down RRSP or Corporate retained earnings for instance? As you’ll know they pay no annual distributions but rather retain dividends and / or interest in the NAV until eventually sold and claimed as preferential capital gains. I’d like to know your thoughts on these products and this line of thinking.


    1. Thanks Jay! Yes I’ve looked at those. I was concerned about the risks, but after some research and checking in with a few folks who are smarter than me, the risks appear to be quite well managed. Yes that might be a great option for taxable amounts. All said, I think it would be tough to evaluate the risks in a severe market correction and recession. I’d check in with Horizon’s on that and perhaps with some experts in the field of derivatives and futures and such. Net net they state that only 10% of the asset is at (contract settlement?) risk, outside of regular market volatility or drawdown risk. Keep in mind that there is no need to use these products in a registered account.


Leave a Reply to Dale Roberts Cancel reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s