allocation is key for retired chemist
This week TONY MARTIN profiles an Alberta man who looks after his own investment portfolio and particularly likes dividend-paying stocks such as the banks
Saturday, July 27, 2002 – Page B8
Keith Betty says he made a deliberate decision in the eighties to learn about investing. Why?
"I'm the one that cares the most about my money," says the
analytical chemist, 53, who retired at 50 and moved to Lethbridge, Alta.
"I recognized that it would cost me in terms of mistakes, but I
wanted the freedom to make my own decisions, and the satisfaction that
Right now, just 10 per cent of his over-all portfolio is invested in the United States. His holdings there are all ishares, Barclay's line of exchange-traded funds.
"I believe the U.S. market is sufficiently effective that ETFs are advantageous compared to active management." His money is evenly spread among ishares that track the large-capitalization Russell 1000, the large-cap value-focused S&P Barra Value, the small-cap S&P 600, and the small-cap value Russell 2000.
As for the Canadian market, he shuns indexing. The reason, he says, is that the Canadian market is both too narrow, meaning there are too few companies to chose from, and too shallow, meaning that after you get through the larger companies, the size in terms of market capitalization drops off rapidly.
By investing in Canadian indexes, he says, "You end up overweight in a few stocks."
He also doesn't like the fact that indexing here at home means investing in resource stocks.
"In the long run, you can't make money by holding cyclicals," he says. "You have to trade them, and that means making buy-and-sell decisions, and that's hard."
Given his pension, he depends on his unregistered investments to kick out about 40 per cent of his needed income. Add in his focus on keeping his tax bill down, and it leads to stocks paying a strong and steady dividend. He holds all the big banks (except for Toronto-Dominion Bank),as well as Canadian Utilities Ltd. and BCE Inc.
As to what makes a good dividend stock, he looks for solid companies that have a consistent pattern of increasing dividends and earnings.
That's why, for example, he doesn't own Emera Inc. -- "It has a high yield but low growth" -- and TransAlta Corp., which he avoids because of the inconsistency of both its earning and the stock price. "I prize consistency because it implies reliability."
Given his interest in income, it's not surprising that he's also a fan of REITs (real estate investment trusts). He has 10 per cent of his portfolio split between Canadian Real Estate Fund, H&R, RioCan and Retirement Residences. He has a rather neat twist on why REITs make particular sense for someone depending on their investments for cash flow. "They should provide you with inflation-indexed payments, since if inflation goes up, they can raise their rents, and raise their payments."
In the same vein, he has 1 per cent of his portfolio in an oil and gas royalty trust as a hedge against energy costs. "If your heating bills go up, so will the distributions."
In his first year of managing his own money, he had chosen to hold some strip bonds outside his registered retirement savings plan, with an eye to keeping some cash free and perhaps making some capital gains. But despite the fact the bonds don't pay interest until maturity, you have to pay tax on the accrued interest. That really cut into his cash flow, so all his bonds -- which currently make up 10 per cent of his over-all portfolio -- are now held inside his RRSP.
While he earlier had this money spread evenly between bonds ranging
from one- to seven years in duration, he now has a heavier weighting at
the longer-term end. Last November he noticed the yields on bonds had
become low, and yields on real return bonds were a good deal higher. As
a result, he switched three-quarters of his bond money out of
shorter-term strips, and into 2021 Government of Canada real returns
His disciplined rebalancing meant he kept a full three-quarters of
what he could potentially have made by selling at the peak, netting
about $37,000. "I actually paid the tax on that quite
happily," he says. "Getting into it was luck, but cashing out
of the bubble was risk management."