November 12, 2019

Portfolio Update November 2019

For a little over 4 years now, we have been reporting our DIY Portfolio progress every 12 weeks or so. And despite the fact the entire process was quite fulfilling by keeping us accountable and fueling our reflection, enjoy these reports while they last because they might stop coming sooner than you might expect. In fact, we have been thinking a lot lately about our blogging career and are at least considering an extended break.

So, if you can’t live without these reports or any other part of our blog, show us some love! 

Because the cold hard facts are that we simply may not have the will to continue on our own.
Let’s proceed for now. Hopefully not one last time…

You can access earlier portfolio updates here:

In the last few months, many signs have been pointing in the direction of a recession. The blow-in-our-faces economical alarms seem to be ticking louder and more often. We can be worried that some of our leaders (I can at least think of one in particular) won’t be able to effectively handle potentially fast approaching crisis. Could the next major recession be also environmentally driven? In many ways, this could be remarkably painful.

We still have a strong belief in the long-term perspective of stocks and won’t bother too much about short-term gyrations. We can only focus on putting measures in place to profit from amazing opportunities colossal market noise may provide.

Meanwhile, our DIY Portfolio is still going strong but we won’t really focus on that this time around. We will rather talk about how we are preparing for that potentially looming recession and a much happier event, the start of our RESP withdrawals.

Once more, I’ll remind you that I am not an investment or tax professional of any kind. The intent of this blog is not to give specific investing advice. Before investing yourself, we suggest you do all necessary research and consult a licensed financial professional if need be. 

Preventive Measures

The big news as of late has been getting some of our money into bonds. We decided to do that for the first time ever because of two main reasons.

One reason to invest in bonds, and particularly short-term ones, is to precautionarily prepare for recession-induced rougher times. We still believe in our economical system and the better sense of some of our leaders and as always, are confident things will eventually get back on track. We just believe bonds give us additional options to get through it more easily. We can even take advantage of it all.

But our main reason to buy bonds is that a big chunk of our money will come out of the markets, at least temporarily, in the next few years. For instance, our RESP withdrawals are scheduled to begin in 2020. We would not want a badly timed stock market downturn to hit us in those circumstances. Our newly acquired bonds should provide enough liquidities to at least temper possible ill effects of tanking markets.

Despite the fact we don’t need any of it right now, a lot of money will come our family’s way from our quite aggressive RESP withdrawal strategy. The main objective of it will be to minimize taxes.

To quickly summarize it, as soon as we are permitted (when our daughter is officially registered for college), all initial contributions (maxed out by rule at 36000$) will be withdrawn as this can be done tax free.

On top of those, we will also maximize Education Assistance Payments (money coming from grants and investment return) taxable in the hands of our daughter. EAPs should provide her between 10000$ and 12000$ for 4 years while keeping her tax bill near zero. We’ll have to adjust EAPs depending on how much she makes from her limited part-time job. In may sound old school, but our entire family believes she should not work too much and concentrate on her studies. She certainly will have the means to do it that way.

The trick with EAPs will simply be each year, to keep her taxable income under the basic personal amount, which should be around 12250$ in 2020. The liberal government re-election should even get us more leeway in that regard. They are proposing an 15% annual increase in the basic personal tax amount to get it to 15000$ by 2023.

Bending Odds in Our Favor

Regardless of the circumstances, we know timing the market is next to impossible. Yet we believe we can somewhat tilt odds in our favor.

For one thing, we can achieve that by making sure our stock buying is only done at attractive prices. Our Dip Factor tool greatly helps us in that regard.

We also try to buy solid stocks. We will continue to strive for the steady boring type. For a long time now, those unsexy stocks have provided the best results for our DIY Portfolio. Quite recently, we added both dividend growth and dividend sustainability to our solid stock standards.

Continuing our cleanup with that frame of mind, we have recently sold Manulife (MFC) and our stake in iShares CDN S&P/TSX 60 (XIU). Only Nutrien (NTR) and Pfizer (PFE) remain on our sell list.

On top of getting some proceeds into bonds, some stock buying opportunities are beginning to emerge. We will remain patient, but some stocks slowly getting in a sensible price range are quite high on our radar. US stocks like Colgate-Palmolive (CL), Johnson & Johnson (JNJ) or even Travelers (TRV). On the Canadian side, we especially are on the lookout for Telus (T) and Canadian National Railway (CNR).

We will also note that we decided to be more environmentally friendly in our stock picks. Hence, Suncor (SU) in officially out of our buying list. We will privilege utility stocks with holdings focused on electricity. Despite being strong candidates, looks like Enbridge (ENB) and TransCanada (TRP) will eventually find they way out.     

Note that for the next few weeks at least, our Watch List will be updated and remain available.

RESP Money Ending Up in TFSAs

Let’s get back to our unique RESP situation. On their own, EAPs will probably be enough to fund our daughter’s education. If they are not, education expenses still won’t make a big dent in our budget because they would only replace money previously used for RESP contributions.

This is another good example of good financial habits that give you transposition options in later stages of your life. Money that you are used to save for RESPs can now be used for education expenses or to fund other projects. Another example is people getting on an aggressive debt repayment plan. Money first used to tackle down debts within 2 or 3 years could then be used for a juicy saving plan afterwards.

In the end, there’s a good chance a big portion of our RESP withdrawals will be used to fund our TFSAs. Despite our great financial discipline, we still have a lot of TFSA contribution room. To some extent, RESP money will allow us to catch up on that.

During all those transfers, we would like to stay invested as much as possible. Liquidities that now include bonds and indirectly channelling RESP money back to our TFSAs should allow us to avoid missing out on time in the market or on attractive buying opportunities if stocks happen to go down.

Now that we are financially ready for it, we’ll have to focus on psychologically preparing for another exciting stage in our daughter’s life. We know it will inevitably greatly affect our own lives too. 

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