EP45: How I Increased My Client's Investment Income by 74%!

In this episode, I show you how in just one coaching call with me, I saved Tracy over $1.3M in fees, and helped her increase her annual investment income by 74% - all without adding any new money to her portfolio! You'll get to see the before and after transformation that simplified her investing, and lowered her risk.

I also cover the following topics in this episode:
- Our approach to investing
- Introducing Tracy
- Tracy's previous holdings
- Tracy's new dividend portfolio

Learn more about coaching calls with me: 
https://www.simplyinvesting.com/personal-assessment

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Transcript

Speaker 1: 0:00

In this episode, I'm going to show you how I saved a client over a million dollars in fees and helped her to increase her annual income from the portfolio by over 74% without adding any more new money to her portfolio.

Speaker 1: 0:20

Hi, my name is Kanwal Sarai and welcome to the Simply Investing Dividend Podcast. In this episode, I'm going to cover four topics with you. The first topic is our approach to investing, and this is important to know because it's going to show you how I used our approach to help Tracy in our case study on how to build her new investment portfolio. So that's topic number one. Topic number two I will introduce to you Tracy, and this is our case study for today's episode. Then we're going to look at Tracy's previous holdings and then we'll take a look at her new dividend portfolio that she's built, has built and is holding today. So let's start with our first topic, our approach to investing. Now, our approach to investing and what I've been teaching and practicing for over 22 years is I teach you how to build your own dividend portfolio safely and reliably for the long term. So we're not day traders. I don't advocate day trading. What's important here is that we invest for the long term, so we don't think in terms of days or weeks. We think in terms of years and decades, and the benefit there is that it's going to help to lower your risk when it comes to investing, maximize your gains, eliminate your fees and reduce your time. So we don't want to spend hours and hours a day, or hours and hours a week trying to figure out what to invest in, how to invest and how to manage our investments. So this approach is simple and how it works is I teach you how to invest in quality dividend stocks when they're priced low. So not just any dividend stock, but a quality stock, and not at any price, but we want to make sure it's priced low. Stock prices go up and down all the time and we do not want to be buying stocks when they're over priced. So how do you know, when you're looking at a stock, that it's a quality stock and that it's priced low? So to help you with that, I've created what I call the 12 rules of simply investing. So think of these as a checklist. You're going to go through this checklist. Make sure that, before you invest in any company or in any stock, make sure that it passes all of the 12 rules that you see up on the screen, not just seven out of 12 or six out of 12, it has to pass all of the 12 rules. If a company fails even one rule, skip it, move on to something else. So if you're watching this right now, you can see the 12 rules up on the screen. For those of you that are listening to the audio version, I'm going to go through them right now and these are going to help us and it's going to show you how I was able to help Tracy move from her existing, the old portfolio to the new investment portfolio. So let's get started with the 12 rules.

Speaker 1: 3:37

Rule number one do you understand how the company is making money? If you don't skip it, move on to something else. Rule number two 20 years from now, will people still need its product and services? Rule number three does the company have a low cost competitive advantage? Rule number four is the company recession proof? If it's not, skip it, move on to something else. Rule number five is the company profitable? Rule number six does it grow its dividend? Rule number seven can the company afford to pay the dividend? Rule number eight is the debt less than 70%? Rule number nine we avoid any company that has had a recent dividend cut. Rule number 10, does the company buy back its own shares? Rule number 11, is the stock priced low? So we check for three things the PE ratio we look at, and then we look at the current yield compared to the company's average 20 year dividend yield. And then we look at the PB the price to book value. And then rule number 12, keep your emotions out of investing. So these rules I've been using them for over 22 years and teaching them for over 22 years are designed, like I said before, to lower your risk, maximize your gains, and they're designed to help you build a profitable portfolio that's going to be also safe and reliable, regardless of what happens in the stock market, because the stock markets go up and down, prices go up and down and we want to make sure that our portfolio, investment portfolio, is resilient. Okay, let's get on to our next topic.

Speaker 1: 5:22

So Tracy this is our case study for this episode today. Of course, I've changed her name for privacy, but we're going to call her Tracy, 45 years old, is a full time software development manager and the portfolio size is $300,000 across three accounts. And she's in Canada, so this is in the TFSA and the RRSP account. In the US it would be equivalent to like a 401k or an IRA account. The portfolio includes a total of 25 funds and it's a mix of mutual funds, index funds and ETFs. Now Tracy's we're going to look at her previous holdings first and then we'll look at what her new portfolio looks like.

Speaker 1: 6:10

So I did. I spoke to her. We had a personal assessment. That was done. This was over a year and a half ago, so the numbers I'm going to show you were current at that time. Of course, today the numbers will be different and depending on when you watch this video.

Speaker 1: 6:29

So Tracy came to me with her investments in spread across three different accounts, and you can see it up on the screen. We have a list of the 25 funds that she owned and, like I said before, it's a mix of mutual funds, index funds and ETFs. So you can see them up on the screen. You can see that at the time when her and myself talked, when we had the personal assessment at the time, the market value, the total for all three accounts, was a little over. It's a $300,000, right. So you can see.

Speaker 1: 7:09

On the next column up on the screen is the MER fee, the management expense ratio, because these are funds, they all come with an annual fee. Now you can see that some of them have a lower fee. You know I can see 0.03% and some of them have a very high fee and I can see there's a two and a half percent annual fee. So I'm not going to talk about the fees in this episode. If you're interested, I go into a lot of detail about the negative impact of fees on your portfolio. So I suggest you go back and watch episode 38. And that's where I cover management expense fees. Okay, so anyway, those are the fees. You can see them up on the screen.

Speaker 1: 7:55

Let's continue on. After 10 years, if Tracy held on to these funds, she would have lost over $60,000 $67,000 to fees. After 20 years, she would have lost over $224,000 to fees and after 40 years, she would have lost over $1.3 million in fees. And, like I said, I cover this fees in detail in episode 38. But that is astronomical, right? So you're looking at a $300,000 investment and of course, the investment is growing over those years. So that's fine. But we can do the same thing with dividend stocks and the investments. Those stocks will grow over time, but they don't have the fees associated with it. So I don't know about you, but I could certainly use an extra $67,000 in my life, or an extra $224,000, or an extra $1.39 million in my life, and so you can see those on the screen, at the bottom of your screen, how the fees just increase over time, and so I'm only showing you the 10 year period, 20 years and 40 years.

Speaker 1: 9:20

Now there's two assumptions that I did make in calculating those fees. So one was that she would continue to contribute annually $72 a year into each of those funds Right. And then we also took as an assumption an average rate of return of 8.5%. So if the rate of return is higher, or she contributes more than $72 per fund, then her fees are also going to be considerably higher. So now let's take a look at how much income is this portfolio of 25 funds? How much money is it generating every year? So we're going to go back to the original list of funds, and they're up on the screen so you can see them. Next, you can see the dividend yield. So some funds don't even pay any dividends, so you make 0%, and some of them have dividends, and you can see that up on the screen. Next is the number of holdings.

Speaker 1: 10:23

Okay, here, I'm not going to pause here for a second. I'm going to ask you to go ahead and watch the previous episode 44, where I talk about the negative impact of too much diversification in your portfolio. And here she has funds that own hundreds or thousands of companies within those funds. Some of these funds own other funds, right, and those funds also have MER fees and they have large number of holdings. So again, this episode is not about diversification, but if you're interested, you can go back and watch episode 44. Okay, let's continue.

Speaker 1: 11:02

So then we put in the dividends per year that she would be getting from these accounts and you can see that the total is about $6,000. And that's at the bottom of the screen. And then, of course, the market value, which I showed you before, is $300,000. So now we want to very quickly calculate what is the portfolio dividend yield. So if we take the $6,000, which is $5,997, so it's approximately 6000 divided by the portfolio, which is a value which is $300,000. You can see that she would be earning each year 2%, so that's not a whole lot. That is the return on her investment while she holds on to these funds. So let's see if we can do a little bit better than that.

Speaker 1: 11:54

But first just a quick summary. So her fund portfolio is yielding 2% the fees, anywhere from $67,000 to $1.3 million over time. That's how much she would be losing to the fees. She is over diversified. There's too much diversification. The average number of holdings across the 25 funds is over 1,000 companies, right? So again, if you're interested, take a look at episode 44 on the negative impact of too much diversification. So then, what's the solution? How can we help Tracy? How can we help her without adding more money to the portfolio? How can we help her get better results? So let's move on to our last topic here Tracy's new dividend portfolio.

Speaker 1: 12:47

So remember the 12 rules. So I applied those 12 rules at the time to look at which companies, which stocks were available to her. So what I suggested to her and what she did, was to move, sell all of the funds the 25 funds, the mutual funds, index funds, etf sell them all, take the $300,000 in cash and invest it into these companies, and you can see the list up on the screen. It's a mix of Canadian and US stocks. These are all blue chip stocks and at the time they were all priced low and they all passed the 12 rules of simply investing. And we kept these companies in the same three accounts that she had before. And again, because they're in a registered account RRSP or TFSA there's no tax implications there, there's no capital gains tax or any dividends because it's in those accounts. And again, it would be something similar in the US to a 401k or an IRA account.

Speaker 1: 13:50

So now let's take a look at the annual dividends per share for each of the companies and again, this was accurate at the time of my call with her, so you can see that on the list. You can see the dividend yield she would be getting from each of those companies and, of course, the quantity of shares that she needed to buy the share price, again current as of my talk with her over a year and a half ago and you can see that the total amount invested was again, we're back to $300,000. So we've taken the same $300,000 she had in her funds and we've put that into a dividend stock portfolio and now we can see that in one year this portfolio would generate over $10,000 in dividends and you can see it at the bottom of the screen. The total number is $10,415.05. So again, we didn't add any more money to the portfolio, but now she's generating way more income. And if we calculate the dividend yield for the entire portfolio, we take the, of course, $10,000 in dividends divided by $300,000. And we can see that now the portfolio is generating 3.5%, which is a lot better than the 2% she was earning before.

Speaker 1: 15:24

Now here's the key the 3.5% will grow every year because these companies that you see on the screen here have a history of increasing their dividends year after year after year after year. You can see Johnson, and Johnson is on the list. They have a history of increasing their dividends consecutively for more than 50 years. So her dividend yield on cost will go up every time any, any company on this list increases its dividend. And there's 25 companies on that list. Now you might be wondering so what is the cost to purchase these 25 stocks? So in her trading account, the trading commission is 999 per trade.

Speaker 1: 16:11

So she bought 25 companies, so she paid a total of $249.75. Now, keep in mind that's a one-time fee. That's it. She's gonna hold on to these stocks for 10, 15, 20, 30, 40 years, and that's it. She paid $249 as a one-time fee, as opposed to the annual fee that you would pay with a mutual fund, index fund and an ETF and we showed you the fees earlier anywhere from $67,000 to over 1.3 million Over her lifetime, right. So there's a huge cost savings here when it comes to fees as well. So, if we look at the summary, this is what I just said over her lifetime, tracy has now saved over 1.39 million fees. She has increased her portfolio income from around $6,000 to over $10,000. That's a 74% increase and again, we didn't add any more money to her account.

Speaker 1: 17:14

She minimized the problems of over diversification, right. She went from owning, theoretically, thousands and thousands of stocks in those funds to just 25 companies, and that's it easy to manage and easy to maintain. And Now she invests in quality companies following the 12 rules of simply investing, and I can show you how to do the same. I Offer personal assessments, we can do a coaching call and I can show you why you're currently paying in fees and how we could change that and Help you eliminate those fees and generate more dividend income every single year. So, as I mentioned before, my approach to investing is to invest safely and reliably For the long term. I'm gonna I show you how to invest in quality stocks when they're priced low. And how do we do that? We follow the 12 rules. I'm not gonna go through the 12 rules again. We already covered them at the beginning of the episode.

Speaker 1: 18:12

If you're interested, I cover them in detail in the simply investing online course. The course is made up of 10 modules, so we start with the investing basics, then I cover the 12 rules in detail, then I show you how to apply the 12 rules to any stock anywhere in the world. I give you a Google sheet so you can just fill that out step by step. I show you where to get the numbers. Fill it out and then the Google sheet will show you which companies pass, which are the rules and which ones fail which are the rules so you know what to avoid, what to invest in. The next module show you how to use the invest simply investing platform. The next module I will take you step by step in placing your first stock order. The next module we talk about building and tracking your portfolio. After that, I'm gonna show you when to sell, which is very important. Just as important to know when to buy. The next module is reducing your fees and risk. The next module I provide you with your action plan to get started. And then the last module, number 10, is I answer your frequently, most frequently, asked questions.

Speaker 1: 19:22

For those of you that are interested, there is a simply investing platform that I spent a little over two and a half years to build. It's a web app and it applies all the rules to over six thousand cut to over six thousand Companies in the US and in Canada every single day. So you log into the web app and you can immediately see which companies to avoid, which ones to consider for investing. So the platform makes it a whole lot easier when it comes to building and maintaining your portfolio. So if you're listening to this episode or watching it, make a note of the coupon code save 10. Sa VE 1 0. It's gonna save you 10% on all of our product and services the course, the platform, the personal assessments, if you're interested, the coaching calls, and you can save 10% on all of that. If you enjoyed today's episode, be sure to hit the subscribe button, hit the like button as well and, for more information, Take a look at our website simply investing calm. Thanks for watching.