Category Retirement Strategies

Saving & investing for retirement. Learning how to spend!

DIY Financial Planning … An Update

Paul - The Wry Eye Guy 2 Comments
Financial Planning on a Napkin!

It’s been almost a year & a half since the post entitled DIY Financial Planning … Is it for You? went up. I have learned a little more about the whole process since then. The biggest lesson is that financial planning is pretty complex & winging it is probably not a good idea. While financial planning is built on forecasts & estimates, it remains crucially important for retirement planning. We need to make a plan with the best estimates available. A plan provides a foundation. Something to work with & measure against going forward.

I continue to like using the Adviice platform to massage the data & predictions into a plan. This platform will not be for everyone. It does take time to learn. I sometimes worry about what might be missing. Starting out, I made errors that I only caught much later in the process. Though I used a pretty straightforward scenario, I still made mistakes & found myself wishing there was a do-over button on a number of occasions. I have to accept most of the responsibility for this.  I should have watched a few of the instructional videos first!

It’s still just $9 a month but, now, you can convert to an even more frugally attractive $49 a year plan. For what you get, this is pretty amazing value. At this price, you get a lifetime of financial planning for what you might pay a professional for developing a one-time plan. Which is out of date when you walk out the door. A plan requires updating & tweaking periodically. Aside from the many changes that can impact our own lives directly, much financial planning is dependent on estimates. Although data driven, these inputs will change over time. Many professional planners, for example, use the projection guidelines published by sources like FP Canada™ & the Institute of Financial Planning. As does the Adviice platform. Now this is good information to plan with. Rather than a DIY investor thinking that the annualised 15% returns from the past decade or so will continue indefinitely into the future! While these projections are done by professionals (& they do put a lot of careful thought & work into this), it’s still just a set of best guesses. Reality will typically be different, either up or down, from the projections. These projections are updated annually. Ideally, we should be reviewing our financial plan following any major changes too. That might be the result of job loss, a health issue, an inheritance, a market crash, a lottery win, & who knows what else.

A retiree might benefit from an annual review, in order to confirm the spending plan for the next year or two. And maybe to confirm that the budget for the retirement home is still intact, should it be needed down the road. All that reviewing & confirming stuff can be more challenging if we need to pay a financial planner to do the reviewing & updating for us. Some of us can take a dismally frugal view of spending money on such things, right? I know it won’t be for everyone, but tools like Adviice can be part of the solution to that problem. With a bit of luck, AI will continue to to take on even more of the financial planning burden. These are complex tools & AI may enhance the usability, while adding some protective guardrails to help defend against our potential for errors.

In this regard, it can be very useful to consider what-if outcomes. Creating alternative scenarios in Adviice is now more comprehensive. For example, you can more easily look at the impact of the earlier demise of one spouse. Previously, you needed workarounds for this. Now you can just choose an age from one of the options in the AI cluster & hit recalculate. The low-cost, single-user version limits the user to one plan, but you can create up to 10 scenarios around that.

The platform does pretty much most of the things you’d expect. With many of these managed by making choices in the AI options. You can start OAS or CPP at different ages. And for each spouse. Set it to prioritise drawing down accounts in different order, beef up tax free savings accounts, limit OAS clawback potential, modify retirement spending up or down, smooth out taxes, manage the size of the after-tax estate you want to leave the kids, & more. Within each scenario, you can target something different. Just select & enable the appropriate options within the AI cluster. You can then use the “Compare” function to see the differences in outcomes between the scenarios. Along with a graphical representation of net worth, the columns of information for each scenario allow for fast & easy comparisons of all the useful information, like income, including CPP & OAS, taxes, lifetime withdrawals & spending, & so on. It’s all pretty cool.

It’s also interesting to colour outside the lines sometimes. You can build a scenario that cuts a portfolio’s value in half, for example. Then play with the AI cluster options to figure out how to survive that scenario. Since there are Monte Carlo simulations built in, you don’t need to do extreme things like this but, hey, it can be fun, terrifying, & educational! You can’t directly modify the FP Canada projection guidelines for returns in the baseline data, nor should we want to for the most part. However, there are workarounds to test with numbers worse, or better, than those guidelines. Create a new scenario & you can then make changes to the return metrics for each account under the “Advanced Options” button. Here you can bring down the returns to, for example, stress test a scenario where you think the guidelines might now be overly optimistic. Great options for those who like to play. And, after all that playing, you might end up with a plan. In fact several variations of a plan!

The easiest way to explore what’s possible is via the Adviice YouTube channel. You can also get more insight at the Adviice community on Reddit. Here, you’ll also get a good handle on how they respond as a company. They’ll acknowledging feature requests & partake in Q&A interactions that will give you a great feel for the user experience. They will also acknowledge where something is lacking & provide feedback on whether it’s being address in future releases. All pretty good & pretty transparent, I think. I have no affiliation but I am enthusiastic about the product & the company. For me, Adviice is a whole lot better than trying to create financial & retirement planning scenarios with my limited spreadsheet skills. Even with the Adviice platform, I don’t trust myself fully. I still might miss something important. So having a professional run a plan periodically is probably wise. A retirement plan is just too important a thing to allow for any unnecessary uncertainty or discomfort.

Inside the Adviice platform menu, you can actually book a review session with a real professional. One that can use the baseline plan that you created within Adviice. There are several advisors on board the platform, offering a range of services. These range from a review, all the way through to a comprehensive planning & support package. Some of the pricing is quite competitive, particularly for an oversight or review exercise. I don’t have any direct experience with these services, so you’ll have to assess this option further before making a decision on whether it might be right for you.

There are other new platforms coming into this space now. I haven’t played with them yet & I don’t know how they compare. But this is great news. Financial planning is so important & I know I wasn’t doing the greatest job with a spreadsheet. These tools can shed more light in the darker corners & that can make for a better plan. Potentially one a better outcome. These are the kind of tools that everyone needs access to. As AI improves, I’m looking forward to seeing them get smarter & easier to use. Hopefully this progress will deliver an even better product & at an affordable price. Easy to use, more idiot proof (I’m the idiot referred to here!), & affordable are key attributes. Many people are discouraged by the cost of a having a plan done by a professional, so affordability does matter. But costs aside, one thing is certain: we can all benefit from having a good plan. Especially one prepared far enough in advance to help us avoid going into a poorly planned retirement!

To sidestep from Adviice for a minute, I’ve also enjoyed playing with the TPAW Planner. This is a very interesting, & free, online planning tool that was developed by Dr. Ben Mathew. You can learn more about it on the Bogleheads thread for Total Portfolio Allocation and Withdrawal, that’s where the TPAW initials come from. This is based on the “lifecycle model” & it considers a variable withdrawal as a more appropriate strategy for retirement. There are a lot of Greek letters used in the formulae employed by the lifecycle model! The TPAW Planner, however, keeps all that under the hood & it is an easy tool to use. But you might not be getting all the detail you need either. It doesn’t get into taxation, all the registered account stuff, etc. so it’s not as all-embracing of detail like we’re used to seeing on Adviice, or on the financial planning video clips from the pros. It doesn’t cover all the bases that tools like Adviice & the other Canadian solutions do. But it might help provide another perspective of what things might look in retirement. It might be a good comparison exercise for any financial plan you might already have. Or to one you develop in Adviice or one of the other tools. TPAW Planner is pretty easy to use, but be sure to spend time reading up & understanding it, a lot, before trusting the results. There is a lot more to financial planning, & to this methodology, than first meets the eye. Simplicity can hide some of the dangers from sight. Even from experienced DIY planners.

Whatever you choose to do, even if it’s a spreadsheet or on a coffee stained napkin, a financial plan is hugely important. Unfortunately, sometimes we don’t know what we don’t know. If you don’t have the knowledge & confidence to do it yourself, keep yourself safe & pay for professional advice. We don’t want to discover we didn’t know something important when we’re half way through retirement, eh?
Of course, the other challenge might be figuring out how to choose a good financial planner. That’s a whole other question but, at the very least, make sure they’re appropriately qualified & certified. Be careful out there!

If you want to learn more about saving & investing, please check out Double Double Your Money, available at your local Amazon store.

Important – this is not investing, tax or legal advice, it is for entertainment & conversation-provoking purposes only. Data may not be accurate. Check the current & historical data carefully at any company’s or provider’s website, particularly where a specific product, stock or fund is mentioned. Opinions are my own & I regularly get things wrong, so do your own due diligence & seek professional advice before investing your money.

Investing Advice & Weather Forecasting

Paul - The Wry Eye Guy Leave a comment
Pick the Best Lounger!

I’m going to tell a story today, no numbers & stuff. Just light reading for a Friday afternoon. TGIF!

I was enjoying a nice lunch on an oceanside patio earlier this week. It was a beautiful sunny day in Nova Scotia. Everyone was basking in a summer heat that was perfectly tempered by the breezes coming across the bay. An Ontario couple at the neighbouring table were asking our server about the harsh winters in Nova Scotia. At the next table, a person in a group of Quebec visitors chimed in that they were interested in hearing about that too. To cut a long story short, the people from Ontario wanted to confirm that winter here was way harsher than winter in their neck of the woods. Our young server, a born & bred Nova Scotian, agreed that winter on the coast was absolutely awful. The Quebec group included a couple that were interested in moving to Nova Scotia, so they were more than a little disappointed to hear this news. They really wanted to move to a place with a milder winter than theirs. Another couple in the Quebec group lived in a apartment building in downtown Montreal. They were connected to the underground city complex there & could work & live a very full life in Montreal without ever having to go outside during the winter months. Though they did head outside to the ski slopes periodically. They didn’t care what Maritime winters were like, they thought Montreal’s winters were great!

What was happening here was quite incredible. Ontarians who had never been to the Maritimes in winter set the stage by claiming winters here were horrendous. Maybe the worst in Canada. Their opinion was confirmed by our server. A local who grew up with Maritime winters. But he had never been to Ontario in winter & couldn’t really make that comparison with any authority. We all have our blind spots, eh! On top of that, the disappointment of the Quebec couple simply reinforced the negative echoes that were bouncing around in this newly formed echo chamber. And the other Quebec couple couldn’t have cared less, they were totally happy with how they enjoyed their winters in Montreal.

What was going on here?

One uninformed opinion was reinforced by another uninformed comparison, & this developing feeling was augmented by an additional negative emotional reaction. While yet another emotional reaction, albeit from a totally different perspective, served to further confirm the groupthink conclusion. That Nova Scotian winters were just awful. Regardless of how true this might (or might not) be, this is how echo chambers work.

Fortunately, for all the people in this story, I was there to save the day. As it happens, I have lived through several winters in all three locations! It’s not often in life that we are presented with opportunities to strut our stuff from a position of 100% conviction. In I waded, pointing out how awesome that coastal winters are & how they compare very favourably to the truly horrible winters in Ontario & Quebec. I might even have gone overboard, just a little, extolling the almost tropical nature of winters in the Maritimes! By the time I was done, they were all moving to Nova Scotia.

Okay, I’m kidding, they were not all doing that. But the couple who wanted to move were a little relieved. And the rest were actually mildly surprised that coastal winters weren’t as bad as they’d imagined. But despite my obviously superior level of knowledge & experience (😜) relating to this specific question, this was still just my opinion on the matter. Yes, it does snow, but it usually melts pretty quickly. And then it’ll probably rain & do some other weird stuff. And we really don’t have that many hurricanes & sou’westers, eh! Or is it nor’easters? I don’t know. But I do prefer the frequent melts we get here, compared to Ontario & Quebec. And that makes east coast winters better … but only in my opinion. Those who prefer to ski in winter, for example, might not agree. In my mind, I might have been right, but my version of right might not suit everyone. So even with my supposedly strong level of knowledge, backed by experience, my right answer will not necessarily be right for everyone. In fact, it might not even be right for me going forward. What if I wanted to start skiing in winter!?! Okay, that’s unlikely, but never say never.
Of course, I was careful to warn my new found friends that past performance is no guarantee that things will be the same in future. Sorry, couldn’t help that one!

So what’s the point of the story? Echo chambers are easily created. And we enjoy spending time in them. That’s not surprising, since we like to hang out with people who share our likes & dislikes. Be it for weather or for investing. But it can be enlightening to pull back & consider alternative perspectives. I think it’s worth trying to keep an open mind. And to spend time trying to find our own blind spots. Sometimes, facts & evidence are elusive. We need to push back against our personal biases to ensure we are seeing things clearly. If only to see if we might enjoy a winter skiing holiday in Quebec. Now to be honest, I might not hit the slopes. But I do need to practice my French lessons. And I really enjoy the food in Quebec. Regardless of the season!

If you’re a regular reader here, watch out for my biases!

PS … I had the fish and chips. Again! LOL

If you want to learn more about saving & investing, please check out Double Double Your Money, available at your local Amazon store.

Important – this is not investing, tax or legal advice, it is for entertainment & conversation-provoking purposes only. Data may not be accurate. Check the current & historical data carefully at any company’s or provider’s website, particularly where a specific product, stock or fund is mentioned. Opinions are my own & I regularly get things wrong, so do your own due diligence & seek professional advice before investing your money.

Declutter an Investment Portfolio

Paul - The Wry Eye Guy Leave a comment
A tidy portfolio can deliver growth or income with less work!

Managing a bag of stocks & ETFs is difficult. The fund companies have come up with products that have the potential to take away much of this pain. The all-equity ETFs & the all-in-one asset allocation ETFs offer a complete portfolio, wrapped in a single ticker symbol. Of course, no matter how good these products are, there might be some emotional investing needs too. Investing is both mathematical and psychological, eh? So maybe a little tweaking is okay!

Owning an ETF like BMO’s ZEQT (or iShares XEQT, VEQT from Vanguard Canada, etc.) is probably a good core choice for many investors. An ETF like this is already globally diversified. It’s geographically weighted according to market size & importance. It includes what many consider to be a reasonable home country bias. It holds large, mid, & small cap companies. It’s a really big haystack that I think Jack Bogle would approve of. According to Nobel Prize winning economist, Harry Markowitz, diversification is the only free lunch in investing. These funds meet that bar too. And finally, it’s a simple approach that is a lot less work for a DIY investor.

Do you spend your time figuring out if you should be dumping some of the tech ETF, so you can buy more of the gold one? Or trying to figure out when you should be selling the US market off, in order to buy Europe & Asia? Are you trying to work out what to do with this week’s hot & cold stocks? Worried about sector ETFs that might be going in, or out, of favour? Surging or failing markets? It’s all quite stressful & time consuming, eh? Life is too short. Especially as we get older! An ageing brain needs some challenge. But not torture. The globally diversified funds have everything in there. Some stuff will go up, some will go down. These funds are diversified & that’s how they work. And there’s one other important point to simplicity: if there’s a chance that the investing manager of a couple might depart first, a decluttered portfolio might be greatly appreciated by the surviving partner. The simpler the investing solution in place, the better it’s likely to be.

Want bonds? Choose one of the all-in-one ETFs (ZGRO, XBAL, VCNS, etc.) with a bond allocation that matches your needs. These are very simple solutions for highly diversified, asset-allocated portfolios, & they come with built-in rebalancing. Some investors might prefer an all-equity ETF that is complemented by separate bond & cash-like ETFs. There are some good arguments for breaking out the bond & cash allocations. It’s a little extra work, but it may make sense for some.

Now different investors have different approaches, so it’s not just about growth & accumulation. Fortunately, there is often a simple solution for many of the other investing styles too. For example, an income investor that favours high yield funds can choose something like the EQCL ETF, from Global X Canada, for the equity portion of their portfolio. It’s very similar in asset mix to the all-equity configuration of ZEQT. But instead of focusing on growth, this fund uses covered calls & leverage to drive a far higher distribution. People are different. Some are happy to go for maximum growth & sell off shares for income. Others prefer that the fund company delivers a bigger income stream for them. Rather than selling shares, these people are more comfortable figuring out how much of the big distribution they need to reinvest, in order to sustain & grow that income stream. Some investors like to mix & match such strategies. There are those who use different strategies in different accounts, so one style will be used in the TFSA & another in the RRSP. If you are new to these income funds, note that there are some total return & tax characteristics that are different to the regular type. Take the time to learn before diving in. Though that suggestion applies to everything. And it should have previously applied to the messy portfolios we sometimes find ourselves with! LOL

BMO offers yet another approach with their T6 Series ETFs. These funds dole out a targeted 6% distribution with funds like ZGRO.T & ZBAL.T. Here the fund manager is delivering the extra income, primarily via return of capital, but without the investor having to manage the sale of shares. This is cool for those who think that the 4% Rule isn’t allowing them to spend as much as they’d like. But it’s not as biased towards the far higher distributions that come from some of the high yield funds. This is more of a middle ground for income seekers. Don’t assume that this 6% distribution is a given for an inflation beating income stream for a full retirement lifecycle, by the way. Read this post on the Safe Withdrawal Rate in Retirement on why that might not work all the time. Nonetheless, the T6 funds will take care of automatically delivering a higher monthly yield, based on the value of the underlying fund at the end of the previous year. You still need to pay attention to the variability of the income stream over time. There may be a need to reinvest a little extra when income goes up after a great year, for example. That might safeguard against an income drop if the markets go down the following year. If the fund is subject to successive down years, the income stream will decline too. No solution is perfect when we try to predict the future, eh? But the bottom line is that simpler solutions exist for most investing styles & strategies. And for varying levels of distributions. Regardless of the investing strategy that is preferred, it shouldn’t stop an investor exploring ways to tidy up a messy & confusing portfolio. Especially if it reduces stress, while improving visibility & returns. Decluttering can be both refreshing & potentially rewarding.

If you can’t get your head around having so few holdings, how about putting the BMO one (ZEQT) in the RRSP, the iShares one (XEQT) in the TFSA, & Vanguard’s (VEQT) in the non-registered. Each one of these is globally diversified. They own a little piece of everything traded on the public markets. These are all essentially identical. But I get it. I totally feel the need to spread it around the different fund companies myself! There is also something to be said for making the single ticker solutions the core of a portfolio. While leaving a smaller allocation available for some gambling on the side. Sorry, I meant some intelligent macro investing on the side to boost alpha! If you know you can do it well, or if you can afford the greater uncertainty of return for a small part of the portfolio, then it might be fun, no it’s still crazy, okay! 😜

One other consideration. If the current messy portfolio performance is seriously lagging that of a single ticker solution, ask why. There may be good reasons why. And good reasons to justify staying the course with existing investments. But if we can’t come up with good answers (that aren’t guesswork or wishful thinking!), then consider this … if a portfolio is consistently underperforming the single ticker ETFs by an amount that is significantly more than 1%, it might be better off in the hands of an advisor who only charges 1% to manage the portfolio. Even if all the advisor does is invest it all into ZEQT or VBAL & manage the financial planning & cashflows for the investor thereafter!

There is also one big caution with all this. Decluttering a portfolio isn’t like spring cleaning at home. Do NOT rush into selling a bunch of stuff without getting some professional tax & investing advice. A long-term holding in a non-registered account, for example, may have significant capital gains tax liability if sold off. It might bump income up to a higher tax bracket. It might generate income that exceeds an OAS clawback limit, & so on. There are many potential issues, so seeking professional help is often the best course. There can be other challenges with balancing different fund types across the different account types. If you don’t know how to manage all this, get some help. Even if you’re just not sure if you know enough to manage all this, get some help first!

If you want to learn more about saving & investing, please check out Double Double Your Money, available at your local Amazon store.

Important – this is not investing, tax or legal advice, it is for entertainment & conversation-provoking purposes only. Data may not be accurate. Check the current & historical data carefully at any company’s or provider’s website, particularly where a specific product, stock or fund is mentioned. Opinions are my own & I regularly get things wrong, so do your own due diligence & seek professional advice before investing your money.

Beware of Advice from Recent Retirees!

Paul - The Wry Eye Guy Leave a comment
Gambling on Retirement!

It’s unfair to tarnish all retirees with that statement, some might be offering great advice. But I’d be a little more circumspect about advice from those retirees advocating for earlier retirement because of their recent success. Some of these well-meaning folk might be suffering from recency bias. What’s that?

Anyone retiring in the past 15 years, with big stock market exposure, has probably been pretty lucky. Or, as they might prefer to see it … they are brilliant investors! This is especially true if their portfolio was biased towards the US markets. S&P500 Index® funds have returned close to 14% annually. The tech heavy Nasdaq 100 Index® has done even better.
I have to admit, some of them do look like investing geniuses!

Over the past decade & a half, it almost didn’t matter what strategy was employed. Just about any broad based American equity funds worked well. The growth investor did well & dividend investors did well. Investors who choose funds delivering huge yields via covered calls & partial leverage did well. They are all still doing well. Some of these retirees are mocking the old 4% Rule. As they sip frozen margaritas on a beach in the Caribbean! They are having a ball. And it’s hard to argue with success. But this might not apply to the next batch of retirees. And those with more limited finances need to be especially careful.

The 4% Rule is not a rule, it’s a rule of thumb. A guide only. But there are good reasons for its existence. Reasons that are at least broadly acknowledged by most. In a “normal” world, the safe withdrawal rate of 4% generally worked. In the “modern” world, it seems like you can haul out 12 or 13% every year & ride that gravy train all the way to the bank. Or the beach! That’s been the story for anyone retiring from 2010 onwards. The few blips we had along the way, like the one earlier this year, another in 2022, the 2020 downdraft for covid. They all repaired so quickly that nobody really noticed these as bad events. In fact, all those rapid blips did was reinforce the “buy the dip” philosophy. And, for those who didn’t panic, that has worked out very well.

But there will almost certainly come a time, where the dips will hurt a little more than these recent examples. There will be more enduring dips. And in such times, the 4% withdrawal rate may be more appropriate for managing retirement income risk. Ask anyone who retired in 2000. I’m not kidding, find an older retiree & ask. You probably won’t find them on social media! The experiences of more recent retirees is not how things always were. And while the good times are still rolling, they may not continue forever.
In case you can’t track down one of those older retirees, read this post on the Safe Withdrawal Rate in Retirement.

If you were planning on saving a million bucks before retiring, but you’ve only made it to half a million so far, pause a minute. Think very, very carefully about taking any advice that suggests you can retire immediately on your half-sized stash. Some recent retirees may think it’s okay to use 10% withdrawals nowadays. Or maybe they suggest that you can buy a bunch of funds yielding 10, 12, or even 15%, & go enjoy life sooner. This might not be good advice. Remember the old investing disclaimer: past performance is not indicative of future returns? In fact, it’s more likely going to be the opposite. After such an amazingly good run of returns, it’s far more likely that future returns will not be as good.

Look, I don’t know what the future holds. Maybe these enthusiastic retirees are right. But for anyone on the threshold of retirement, or for those younger retirees with a longer retirement timeline, caution is warranted. I’m sure I would enjoy spending a little more after a really good year of returns. And I’d probably do that again the following year, if there was another good year in the bank. But I would not start out a full retirement cycle of 20 or 30 years with the expectation that 10% a year is going to be the norm. While it’s not a commandment, I would treat that 4% Rule of Thumb with a little respect. I sure hope that we might still enjoy some good years of 5 or 6% spending. Who knows, maybe even a little more than that from time to time. Actually, let’s be honest here, I’m really hoping that 10% thing holds up for my retirement, from beginning to end! But I’m not taking that optimistic hope to the bank for the long haul. It’s probably not going to work as a good financial planning number!

If you can’t figure this all out on your own, please see a qualified financial planner & step through the process carefully with them. They will help you figure out how much you need to save to retire. And how much you might be able to spend during retirement. I know it’s expensive to work with a financial planner, but it might prove to be money well spent. Rather than finding out that you got it wrong half way through retirement.

If you want to learn more about saving & investing, please check out Double Double Your Money, available at your local Amazon store.

Important – this is not investing, tax or legal advice, it is for entertainment & conversation-provoking purposes only. Data may not be accurate. Check the current & historical data carefully at any company’s or provider’s website, particularly where a specific product, stock or fund is mentioned. Opinions are my own & I regularly get things wrong, so do your own due diligence & seek professional advice before investing your money.

Growth or Yield for Retirement Income?

Paul - The Wry Eye Guy Leave a comment
Growth or Yield?

Since Jack Bogle came up with the idea, it’s been difficult to beat a market index portfolio for total return. This approach can work well over decades of saving & investing for retirement. But we can feel differently about things as we get older. After a lifetime of picking up a regular paycheque, we’d really like a regular paycheque in retirement too, eh? And if there isn’t a nice pension ready to deliver that paycheque, income investing might have appeal.

Interest rates & bond yields have declined over the past couple of decades, so not much income to be had there. Even old-fashioned dividends have declined, particularly in the US equity market, as valuations increased. Some years ago, fund companies realised the boomer retirement market was in search of bigger income streams. In response, they created covered call funds with higher distribution yields. More recently, fund creators are adding some leverage. This not only boosts the distribution yield, but it also boosts the potential to recover the some of the return that covered call writing tends to lop off. Here’s one example of how this might work …

This is a simple comparison between HYLD (Hamilton Enhanced U.S. Covered Call ETF) & VSP (Vanguard S&P 500 Index® ETF). Hamilton describes HYLD as having an “overall sector mix broadly similar to the S&P 500®”. Since it’s hedged back to the Canadian dollar, we are comparing it to VSP, from Vanguard Canada, which is also hedged. The equivalents from iShares (XSP) & BMO (ZUE) would also work for this. HYLD has only been around since February 2022, so it’s far too short a time to say how it will fare over the long-term. For this exercise, I trimmed off the first year’s performance for HYLD. Because it contained some third party funds that might have impacted performance. These were gradually replaced by Hamilton’s own funds & performance improved. Though it shortens the timeline, I think it is a fairer comparison for guesstimating what it could look like going forward.

With all dividends & distributions reinvested from March 2023 up to July 25th, 2025, the result sees VSP compounding at a shade over 21.6% annually & HYLD comes in at 20.9%. Over that time HYLD actually took the lead occasionally but, for the most part, they tracked very closely together. I think it’s fair to call it a tie. For a $100k investment, VSP would have grown to about $160.5k, while HYLD would have turned into about $158.2k. In contrast, the yield from VSP is only about 1%, while HYLD is currently throwing off almost 13%. Despite the huge difference in yield, the total return is virtually identical.

Each investing strategy brings its own unique challenges for a retiree. The “growth” investor has to decide how many shares to sell to augment the income. The “income” investor has to decide how much of the distribution should be reinvested to ensure the success of the portfolio into the future. That’s a bit of a challenge for either one, so we’ll start by paying out $1,000.00 a month. That’s a simple annual withdrawal rate of 12% based on the starting value. And, to keep pace with inflation, we’ll adjust the income stream over time. Since the annualised growth rates were over 20% for both funds, that sounds reasonably conservative, eh? With this arrangement, both funds deliver an identical income stream of just over $29k to the investors over the almost two & a half year period. After all withdrawals, HYLD has an end value of $122.2k, with $124.2k in VSP. Again, little to no difference. This is a great outcome for both investing strategies.

Along with a great monthly cheque, the other important thing here is that the remaining value of both portfolios, after all withdrawals, is well up from the original $100k invested. Using the Bank of Canada’s inflation calculator, a portfolio value of $100k at the start of 2023 would equate to a value of about $107.5k in 2025. Since both funds are well ahead of this number by the end of the comparison, that bodes well. In fact, we could have started with a $1,400.00 dollar monthly withdrawal & the end values of both funds would have been in line with the inflation adjusted portfolio value needed for the future. But my crystal ball was broken back in 2023, so I took a safer path! 😜
That larger withdrawal amount would have been a withdrawal rate closer to 17%. Wow!

Some huge words of caution about this example: 12% is not a typical withdrawal rate over the course of a 30 year retirement. High yield percentages can not automatically be used as a withdrawal rate either. It may be possible for a time, but we also need to keep an eye on the underlying share price. And on the trajectory of the income stream. Is it going up or down? Are we keeping up with inflation? Unfortunately, we have to plan for an uncertain future. We can’t depend on the markets delivering consistently incredible returns over a long retirement timeline. Indeed returns are very uncertain over any future timeline, long or short. Look at the total return profile of your portfolio, not just the yield. In this case, there are older S&P 500 Index® funds that can be back-tested to show how precarious retirement life can be. At times, withdrawal rates much closer to 4% were required. It will be interesting to see if some of the newer funds can do better.

There are some very good reasons that the 4% Rule (of Thumb!) was used as a baseline for evaluating retirement plans. These days, a financial planner will use some pretty sophisticated software to plot out what’s possible for a given set of circumstances & predictions. In addition, the plan may produce higher or lower income streams based on individual investor choices. Financial plans should be reviewed regularly. Each new year starts with the new return estimates. Along with age revisions (money needed for fewer years with each passing year!), revised needs & wants, etc. And, of course, the current portfolio value is now the new portfolio value for planning the rest of the retirement journey. An investor that is willing & able to tolerate large income swings from one year to another may be able to sail closer to the wind on higher withdrawals. As would a retiree with a large guaranteed income stream from pensions, for example. Without that safety net, it can be far more challenging. The superb performance of the US markets for the past decade or more might have us believing that there are unicorns & leprechauns underneath all the rainbows & sunbeams. Tread very carefully. For most of us, it’s likely worth shelling out for a professional financial planning review to see what’s possible. The good & the bad.

One last thing: regardless of which strategy you favour, it’s usually worth listening to the other point of view. I know both growth & income investors that are killing it with their chosen strategy. Then there are some that aren’t quite sure how well, or how poorly, they are doing. We can all learn something new, eh? There may even be circumstances, both data driven & psychological, that encourage using a combination of strategies to navigate retirement. It’s usually worth taking the time to see a different perspective. And it might help to Benchmark Your DIY Portfolio against one of those recommended by experts & professionals in the field. Knowing how your portfolio behaves may help with engagement during the financial planning conversion.

Happy retirement spending!

If you want to learn more about saving & investing, please check out Double Double Your Money, available at your local Amazon store.

Important – this is not investing, tax or legal advice, it is for entertainment & conversation-provoking purposes only. Data may not be accurate. Check the current & historical data carefully at any company’s or provider’s website, particularly where a specific product, stock or fund is mentioned. Opinions are my own & I regularly get things wrong, so do your own due diligence & seek professional advice before investing your money.